Question
In: Finance
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, gL |
0 |
% |
|
Cost of equity, rs |
10 |
% |
|
Shares outstanding, no |
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, rs, will increase to 13% to reflect the increased risk. Bonds can be sold at a cost, rd, 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? $_____
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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:
Assets (Market value = book value)
$3,000,000
EBIT
$500,000
Cost of equity, rs
10%
Stock price, Po
$15
Shares outstanding, no
200,000
Tax rate, T (federal-plus-state)
40%
The firm is considering selling bonds and simultaneously
repurchasing some of its stock. If it moves to a capital structure
with 30% debt based on market values, its cost of equity,
rs, will...
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:
Assets (Market value = book value) $3,000,000
EBIT $500,000
Cost of equity, rs 10%
Stock price, Po $15
Shares outstanding, no 200,000
Tax rate, T (federal-plus-state) 40%
The firm is considering selling bonds and simultaneously
repurchasing some of its stock. If it moves to a capital structure
with 35% debt based on market values, its cost of equity, rs, will...
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:
Assets (Market value = book value)
$3,000,000
EBIT
$500,000
Cost of equity, rs
10%
Stock price, Po
$15
Shares outstanding, no
200,000
Tax rate, T (federal-plus-state)
40%
The firm 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,
rs, will...
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, gL
0
%
Cost of equity, rs
10
%
Shares outstanding, no
100,000
Tax rate, T (federal-plus-state)
25
%
What is Rivoli's intrinsic value of operations (i.e., its
unlevered value)? Round your answer to the nearest dollar.
$
What is its intrinsic stock price? Its earnings per share? Round
your answers to the...
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:
Assets (Market value = book value)
$3,000,000
EBIT
$500,000
Cost of equity, rs
10%
Stock price, Po
$15
Shares outstanding, no
200,000
Tax rate, T (federal-plus-state)
40%
The firm is considering selling bonds and simultaneously
repurchasing some of its stock. If it moves to a capital structure
with 25% debt based on market values, its cost of equity,
rs, will...
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:
Assets (Market value = book value)
$3,000,000
EBIT
$500,000
Cost of equity, rs
10%
Stock price, Po
$15
Shares outstanding, no
200,000
Tax rate, T (federal-plus-state)
40%
The firm 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,
rs, will...
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:
Assets (Market value = book value)
$3,000,000
EBIT
$500,000
Cost of equity, rs
10%
Stock price, Po
$15
Shares outstanding, no
200,000
Tax rate, T (federal-plus-state)
40%
The firm is considering selling bonds and simultaneously
repurchasing some of its stock. If it moves to a capital structure
with 25% debt based on market values, its cost of equity,
rs, will...
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:
Assets (Market value = book value)
$3,000,000
EBIT
$500,000
Cost of equity, rs
10%
Stock price, Po
$15
Shares outstanding, no
200,000
Tax rate, T (federal-plus-state)
40%
The firm 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,
rs, will...
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:
Assets (Market value = book value)
$3,000,000
EBIT
$500,000
Cost of equity, rs
10%
Stock price, Po
$15
Shares outstanding, no
200,000
Tax rate, T (federal-plus-state)
40%
The firm is considering selling bonds and simultaneously
repurchasing some of its stock. If it moves to a capital structure
with 25% debt based on market values, its cost of equity,
rs, will...
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:
Assets (Market value = book value)
$3,000,000
EBIT
$500,000
Cost of equity, rs
10%
Stock price, Po
$15
Shares outstanding, no
200,000
Tax rate, T (federal-plus-state)
40%
The firm is considering selling bonds and simultaneously
repurchasing some of its stock. If it moves to a capital structure
with 30% debt based on market values, its cost of equity,
rs, will...
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