Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Rivoli Company has no debt outstanding, and its financial position is given by the followin data: Expected EBIT: $600,000 Growth rate in EBIT . g:
Rivoli Company has no debt outstanding, and its financial position is given by the followin data: Expected EBIT: $600,000 Growth rate in EBIT . g: 0\% Cost of equity: 10% shares outstanding: 200,000 Tax rate 25% a. What is Rivoli's unlevered value? What is its stock price? Its earnings per share? b. Rivoli is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equity, rs, will increase to 10.96% to reflect the increased risk. Bonds can be sold at a cost, rd, of 7%. Based on the new capital structure, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? c. Assuming the company had 140,000 shares remaining outstanding after the repurchase, what is its new stock price? Its new earnings per share
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started