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What is the ratio of price to expected earnings

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Reference no: EM133127172

Question - River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $280,000 of debt at an interest rate of 12% and use the proceeds to repurchase 28,000 shares at $10 per share. Profits before interest are expected to be $128,000.

Required -

a. What is the ratio of price to expected earnings for River Cruises before it borrows the $280,000?

b. What is the ratio after it borrows?

Reference no: EM133127172

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