Capital Structure Analysis The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Assets (Market value-book value) EBIT Cost of equity, rs Stock price, Po Shares outstanding, no Tax rate, T (federal-plus-state) 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, rs, will increase to 13% to reflect the increased risk. Bonds can be sold at a cost, rd, of 6%. Rivoli is a no-growth firm. Hence, all its earnings are paid out as dividends. Earnings are expected to be constant over time. $3,000,000 $500,000 10% $15 200,000 4096 a. What effect would this use of leverage have on the value of the firm? I. Increasing the financial leverage by adding debt has no effect on the firm's value II. Increasing the financial leverage by adding debt results in an increase in the firm's value III. Increasing the financial leverage by adding debt results in a decrease in the firm's value b. What would be the price of Rivoli'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 $