What is the ratio after it borrows

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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 to repurchase 15,000 shares at $10 per share. Profits before interest are expected to be $120,000.

1. What is the ratio of price to expected earnings for River Cruises before it borrows the $150,000?

2. What is the ratio after it borrows?

Reference no: EM133272713

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