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What is the ratio of price to expected earnings

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Question - River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $170,000 of debt at an interest rate of 10% and use the proceeds to repurchase 17,000 shares at $10 per share. Profits before interest are expected to be $117,000.

Required -

a. What is the ratio of price to expected earnings for River Cruises before it borrows the $170,000?

b. What is the ratio after it borrows?

Reference no: EM133041355

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