10% Capital Structure Analysis The Rivoll 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, 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, will increase to 11% to reflect the increased risk. Bonds can be sold at a cost, cd, of 7%. Rivoll is a no-growth firm. Hence, all Its earings are paid out as dividends. Eamings are expected to be constant over time. a. What effect would this use of leverage have on the value of the firm 1. Increasing the financial leverage by adding debt has no effect on the firm's value 11. Increasing the financial leverage by adding debt results in an increase in the firm's value. 111. Increasing the financial leverage by adding debt results in a decrease in the firm's value. -Select b. What would be the price of Rivoll's stock? Do not round Intermediate calculations. Round your answer to the nearest cent. per share c What happens to the firm's earnings per share after the recapitalization? Do not round intermediate calculations. Round your answer to the nearest cent The firm -Select- its EPS by $ the $500,000 EBIT given previously is actually the expected value from the following probability distribution: Probability EBIT 0.10 ($ 110,000) 250,000 0.40 350,000 0.20 750,000 1,710,000 0.20 0.10 Determine the times-interest-eamed ratio for each probability. Use a minus sign to enter negative values, If any. Do not round intermediate calculations. Round your answers to two decimal places. Probability TIE 0.10 0.20 0.40 0.20 0.10 What is the probability of not covering the Interest payment at the 35% debt level? Do not round intermediate calculations, Round your answer to two decimal places