River Cruises is all-equity-financed. Number of shares Price per share Market value of shares Profits before interest Number of shares Price per share Market value of shares Market value of debt Profits before interest Interest Equity earnings Earnings per share Return on shares $ 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. Note: 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 Current Data 100,000 $ 10 $ 1,000,000 Data Slump 10 Outcomes Slump $ 80,500 80,500 State of the Economy Normal Boom $ 136,000 $ 197,500 State of the Economy Normal % $ 136,000 % Expected Outcome $ Boom 197,500 %
River Cruises is all-equity-financed. Number of shares Price per share Market value of shares Profits before interest Number of shares Price per share Market value of shares Market value of debt Profits before interest Interest Equity earnings Earnings per share Return on shares $ 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. Note: 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 Current Data 100,000 $ 10 $ 1,000,000 Data Slump 10 Outcomes Slump $ 80,500 80,500 State of the Economy Normal Boom $ 136,000 $ 197,500 State of the Economy Normal % $ 136,000 % Expected Outcome $ Boom 197,500 %
Chapter15: Dividend Policy
Section: Chapter Questions
Problem 4P
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