The Rivoli Company has no debt outstanding, and its financial position is given by the following data:

Expected EBIT $300,000 Growth rate in EBIT, gL 0% Cost of equity, rs 8% Shares outstanding, no 100,000 Tax rate, T (federal-plus-state) 25%.

Rivoli 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 11% to reflect the increased risk. Bonds can be sold at a cost, rd, of 8%. Based on the new capital structure,

a)what is the new weighted average cost of capital?

b)What is the levered value of the firm?

c)What is the amount of debt?