Question

River Cruises is all-equity-financed. /> Current DataNumber of shares:                       100,000Price per share:                      $            10Market value of shares:          $ 1,000,000 State of the Economy Slump      Normal           BoomProfits before interest:            $82,750       140,500        202,000
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.)
                                      OutcomesNumber of shares                                     Price per share                                          Market value of shares                              Market value of debt                                                                           State of the Economy                                              Slump                 Normal              BoomProfits before interest            82,750                 140,500              202,000     Interest                                                                                                              Equity earnings                                                                                                  Earnings per share                                                                                            Return on shares                              %                          %                        %                                            Expected Outcome                                                 

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