Question
River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $230,000 of debt at an interest rate of 10% and use the proceeds
River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $230,000 of debt at an interest rate of 10% and use the proceeds to repurchase 23,000 shares at $10 per share. Profits before interest are expected to be $123,000.
What is the ratio of price to expected earnings for River Cruises before it borrows the $230,000? What is the ratio after it borrows?
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Fundamentals of Investments, Valuation and Management
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin
8th edition
1259720697, 1259720691, 1260109437, 9781260109436, 978-1259720697
