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Ratio of price to expected earnings

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River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $340,000 of debt at an interest rate of 12% and use the proceeds to repurchase 34,000 shares at $10 per share. Profits before interest are expected to be $134,000.

a. What is the ratio of price to expected earnings for River Cruises before it borrows the $340,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price-earnings ratio   

b. What is the ratio after it borrows? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price-earnings ratio

Reference no: EM131548815

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