Capital Structure Analysis Hagen Horticulture and Supplies Limited has no debt outstanding, and its financial position is given by the following data: 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, r3, will increase to 9.57% to reflect the increased risk. Bonds can be sold at a cost, r4, of 7%. Hagen is a no-growth firm. Hence, all its earnings are paid out as dividends, and earnings are expected to be constant over time. a. What effect would this use of leverage have on the value of the firm? The value of the firm would b. What would be the market value of Hagen's equity? Market value of equity =$ c. The $500,000 EBIT given previously is actually the expected value from the following probability distribution: Determine the times-interest-eamed ratio for each probability. What is the probabulity of not covering the interest payment at the 40% debt level? Probability =