River Cruises is all-equity-financed 3.5 poiRE Nunber of shares Price per ahare

Question

River Cruises is all-equity-financed 3.5 poiRE Nunber of shares Price per ahare Market value of shares 100 81,000,000 State of the Econany_ Protits betore intereat71 500 11,000 179,500 edogk Suppose it now issues S 250,000 of debt at an interest rate of 10% and uses the proceeds to repurchase 25000 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 (D not round intermediate ceiculetions. Round "Earnings per share" to 3 decimal p rounded to 2 decimal places.) Print places. Enter "Return on shares" as a percent Reterences Outcomes umber of shaesl 125 000 Pnce per shar Marlket value of shares Market value of debt250,000 State of the Economy Noemal Boom Slump 71 500 118 000 79 500 Proits before interesat Equity earmings Eamings per pharo Retun on shares Expected Outcome

Explanation / Answer

Number of shares 75000 Price per share 10 Market value of shares 750000 Market value of debts 250000 Slump Normal Boom Profit before interest 71500 118000 179500 Less: Interest 25000 25000 25000 Equity Earninggs 46500 93000 154500 Earnings per share 0.62 1.24 2.06 (Equity eanings / Number of Shares) Return on shares 6.20% 12.40% 20.60% (Earning per share/ Price per share *100)

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