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(Solution Download) River Cruises is all-equity-financed. Current Data Number of shares 100,000 Price per share $ 10 Mar


 

 

 

 

 

 

 

River Cruises is all-equity-financed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current Data

  Number of shares100,000
  Price per share$10
  Market value of

 

shares

$1,000,000

 

State of the Economy

 

 

Slump

 

Normal

 

Boom

  Profits before

 

interest

$75,000125,000175,000

 

 

 

 

 

 

 

 

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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