Price-earnings ratio-what is ratio after it borrows

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Reference no: EM131587978

River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue $230,000 of debt at an interest rate of 10% and use the proceeds to repurchase 23,000 shares at $10 per share. Profits before interest are expected to be $123,000.

a. What is the ratio of price to expected earnings for River Cruises before it borrows the $230,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Price-earnings ratio

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

Price-earnings ratio

Reference no: EM131587978

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