Question
River Cruises is all-equity-financed. Current DataNumber of shares100,000Price per share$10Market value of shares$1,000,000State of the EconomySlumpNormalBoomProfits before interest$76,750128,500190,000 Suppose it now issues $250,000 of debt
River Cruises is all-equity-financed.
Current DataNumber of shares100,000Price per share$10Market value of shares$1,000,000State of the EconomySlumpNormalBoomProfits before interest$76,750128,500190,000
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.)
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