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# River Cruises Earnings Per Share

Uppose that River Cruises, which currently is all-equity-financed, issues \$250,000 of debt and uses the proceeds to repurchase 16,667 shares. Assume that the firm pays no taxes and that debt finance has no impact on its market value. Rework the table given below to show how earnings per share and share return now vary with operating income.

Round earnings per share to three decimal places and return on shares to two decimal places.

Number of shares = 85,000
Price per share = \$15
Market value of shares = \$1,275,000
Market value of debt = \$250,000

State of the Economy
Slump Normal Boom
Operating income \$50,000 \$100,000 \$150,000
Interest \$25,000 \$ 25,000 \$ 25,000

Equity earnings \$ \$ \$
Earnings per share \$ \$ \$
Return on shares % % %

#### Solution Preview

Suppose that River Cruises, which currently is all-equity-financed, issues \$250,000 of debt and uses the proceeds to repurchase 16,667 shares. Assume that the firm pays no taxes and that debt finance has no impact on its market value. Rework ...

#### Solution Summary

This solution is comprised of a detailed explanation to show how earnings per share and share return now vary with operating income.

\$2.19