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Find ratio of price to expected earnings for river crusies

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Reference no: EM133009501

River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $250,000 of debt at an interest rate of 10% and use the proceeds to repurchase 25,000 shares. Profits before interest are expected to be $125,000.

Problem (a) What is the ratio of price to expected earnings for River Cruises before it borrows the $250,000?

Problem (b) What is the ratio after it borrows?

Reference no: EM133009501

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