1. Tiffanys first concern: What is the potential impact of increasing amounts of debt financing on the ROE and risk of RN Temps?

2. Tiffanys second concern:

a. What is the potential impact of increasing amounts of debt financing on the firms stock price and CCC. Graph the stock price and CCC at different levels of debt and interpret the relationships among them.

b. Based on your results so far, what is the optimal capital structure?

3. Tiffanys third concern: a. What are some potential changes that might affect the business risk of RN Temps?

b. Use the information in exhibit 18.3 to analyze the financial effects of potential changes in the business risk of RN Temps. How do the potential changes in business risk change the optimal capital structure?

4. Tiffanys fourth concern: Returning to the base case, use the data in exhibits 18.1 and 18.2 to calculate and interpret the times interest earned and the cash and marketable securities to annual interest expense at the optimal capital structure for RN Temps. Please show your calculations.

5. Tiffany also wants to know the value of the firm at $7,500,000 of debt according to the Modigliani-Miller with corporate taxes model and the Miller model.

6. Considering all the information available in this case, what is your best estimate for the optimal (target) capital structure of RN Temps?

7. In your opinion, what are three key learning points from this case?