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Ratio of price to expected earnings for river cruises

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River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $210,000 of debt at an interest rate of 10% and use the proceeds to repurchase 21,000 shares at $10 per share. Profits before interest are expected to be $121,000.

a. What is the ratio of price to expected earnings for River Cruises before it borrows the $210,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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

Reference no: EM132499320

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