Determining the target leverage. You judge that a firm has an operating profit margin of 6.5% in a business, so that it would be prudent to target an interest coverage ratio of 3x in that situation. You have the following information from its most recent accounts: realistic-worst-case scenario, and it is considered quite a vulnerable Sales EBIT Debt Equity (book Value)$7,7750 Equity (market value) $17,500 $20,000 $1,950 $4,000 Assume that current bond market interest rate conditions are described by: Book Value Debt Ratio (D/Cap)A 30 to 0.40 0.40 to 0.50 0.50 to 0.60 Interest rate 8% 9% 10% a) Determine a target level of debt for the firm, both in $ and as a ratio to total capital. [Hint: work out three different scenarios, one for each of the three interest rates given in the table, and then pick the answer that is internally consistent]. What is the firm's coverage at target leverage? b) Explain what the firm's CFO must do (Issue debt or equity? Retire debt? Buy back equity and/or pay a dividend? How much?) in order to reach the target capital structure that you propose