Question: River Cruises is all-equity-financed with 56,000 shares. It now proposes to issue $310,000 of debt at an interest rate of 10% and to use the proceeds to repurchase 31,000 shares. Suppose that the corporate tax rate is 35%. Calculate the dollar increase in the combined after-tax income of its debtholders and equityholders if profits before interest are:
|
|
Increase in cash flow |
| a. |
$81,000 |
$ |
| b. |
$106,000 |
$ |
| c. |
$181,000 |
$
|