Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Expected EBIT Growth rate EBIT,

image text in transcribed

Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Expected EBIT Growth rate EBIT, SL Cost of equity, I's Shares outstanding, no Tax rate, T (federal-plus-state) $800,000 0% 10% 200,000 25% a. 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 nearest cent. Intrinsic stock price: $ Earnings per share: $ b. Rivoli 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 increase to 11% 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 % What is the levered value of the firm? What the amount of debt? Do not round intermediate calculations. Round your answers to the nearest dollar. Levered value of the firm: $ Debt: $ C. Based on the new capital structure, what is the new stock price? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is the remaining number of shares? Do not round intermediate calculations. Round your answer to the nearest whole number. shares What is the new earnings per share? Do not round intermediate calculations. Round your answer to the nearest cent. $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Handbook Of Financial Communication And Investor Relations

Authors: Alexander V. Laskin

1st Edition

1119240786, 978-1119240785

More Books

Students also viewed these Finance questions