River Cruises is all-equity-financed.

Current Data

Number of shares: 100,000

Price per share: $ 10

Market value of shares:$1,000,000

State of the Economy

SlumpNormalBoom

Profits before interest:$82,750 140,500 202,000

Suppose it now issues $250,000 of debt at an interest rate of 10% and uses the proceeds to repurchase 25,000 shares. Assume that the firm pays no taxes and that debt finance has no impact on firm value. Refer to the above table to compute the missing data.(Do not round intermediate calculations. Round "Earnings per share" to 3 decimal places. Enter "Return on shares" as a percent rounded to 2 decimal places.)

Outcomes

Number of shares

Price per share

Market value of shares

Market value of debt

State of the Economy

SlumpNormalBoom

Profits before interest82,750 140,500202,000

Interest

Equity earnings

Earnings per share

Return on shares % % %

Expected Outcome