Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given...

Capital Structure Analysis

The Rivoli Company has no debt outstanding, and its financial position is given by the following data:

Expected EBIT	$600,000
Growth rate in EBIT, g_L	0	%
Cost of equity, r_s	10	%
Shares outstanding, n_o	200,000
Tax rate, T (federal-plus-state)	25	%

What is Rivoli's:

intrinsic value of operations (i.e., its unlevered value)? $______

Intrinsic stock price: $______

Earnings per share: $______

Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 40% debt based on market values, its cost of equity, r_s, will increase to 13% to reflect the increased risk. Bonds can be sold at a cost, r_d, of 6%. Based on the new capital structure, what is the new weighted average cost of capital? Round your answer to three decimal places. %_______

Levered value of the firm: $_____

Debt: $_____

Based on the new capital structure, what is the new stock price? $_____

What is the remaining number of shares? ______

What is the new earnings per share? $_____

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jeff jeffy answered 1 year ago

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