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

Slump

Normal

Boom

Profits before interest

$

70,000

115,000

176,500

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

$10

Market value of shares

$

Market value of debt

$

State of the Economy

Slump

Normal

Boom

Profits before interest

$70,000

$115,000

$176,500

Interest

$

$

$

Equity earnings

$

$

$

Earnings per share

$

$

$

Return on shares

%

%

%

Expected Outcome