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Question

16-2)
River Cruises is all-equity-financed with 100,000 shares. It now proposes to issue

$340,000 of debt at an interest rate of 12% and use the proceeds to repurchase 34,000 shares at $10 per share. Profits before interest are expected to be $134,000.

a.What is the ratio of price to expected earnings for River Cruises before it borrows the $340,000? (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

 
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