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River Cruises is all equity financed Current Data Number of shares 100000 Price per share 10 Market value of shares

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 Normal Boom
Profits before interest $ 77,500     130,000     191,500  
 

 

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 $77,500 $130,000 $191,500
Interest $ $ $
Equity earnings $ $ $
Earnings per share $ $ $
Return on shares % % %
   

Expected Outcome

 

Aug 23 2020 View more View Less

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