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River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $150,000 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 $150,000 of debt at an interest rate of 10% and use the proceeds to repurchase 15,000 shares at $10 per share. Profits before interest are expected to be $115,000. a. What is the ratio of price to expected earnings for River Cruises before it borrows the $150,000 ? Note: Do not round intermediate calculations. b. What is the ratio after it borrows? Note: Do not round intermediate calculations. Round your answer to 2 decimal places
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