Combined after-tax income of its debt and equity holders

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Reference no: EM13727348

River Cruises is allequityfinanced with 100,000 shares. It now proposes to issue $250,000 of debt at an interest rate of 10% and to use the proceeds to repurchase 25,000 shares. Suppose that the corporate tax rate is 35%. Calculate the dollar increase in the combined after-tax income of its debt holders and equity holders if profits before interest are:

a. $75,000

b. $100,000

c. $175,000

Reference no: EM13727348

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