Question

16-1)
River Cruises is all-equity-financed.   Current Data      Number

of shares 100,000         Price per share$10         Market value of shares$1,000,000        State of the Economy  Slump NormalBoom  Profits before interest$75,000  125,000  175,000   

Suppose it now issues $250,000 of debt at an interest rate of 10% and uses the proceeds to repurchase 25,000 shares. Assume that the firm pays no taxes and that debt finance has no impact on firm value. Refer to the above table to compute the missing data. (Do not round intermediate calculations. Round “Earnings per share” to 3 decimal places. Enter “Return on shares” as a percent rounded to 2 decimal places.)

 Outcomes    Number of shares             Price per share$10             Market value of shares$              Market value of debt$            State of the Economy     Slump   Normal   Boom  Profits before interest$75,000        $125,000        $175,000          Interest$         $         $           Equity earnings$         $         $           Earnings per share$         $         $           Return on shares %    %    %     Expected Outcome

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