1.How much business risk does Tonka face?

2.How much potential value, if any, can Tonka create for its shareholders at each of the proposed levels of debt? How would leveraging up affect the companys taxes?

3.How much financial risk would Tonka face at each of the proposed levels of debt shown in case Exhibit 12? How would the capital markets react to a decision by the company to increase the use of debt in its capital structure?

4.What capital structure would you recommend as appropriate for Tonka?

5.How might Tonka implement an aggressive capital-structure policy? What are the alternative tactics for leveraging up?

6.What arguments would you advance to persuade Tonkas management to adopt your recommendation?