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River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $310,000 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 $310,000 of debt at an interest rate of 10% and use the proceeds to repurchase 31,000 shares at $10 per share. Profits before interest are expected to be $131,000. a. What is the ratio of price to expected earnings for River Cruises before it borrows the $310,000?

A. Price-earnings ration?

B. What is the ratio after it borrows?

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