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The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Expected EBIT $400,000 Growth rate in EBIT, GL
The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Expected EBIT $400,000 Growth rate in EBIT, GL 0% 10% Cost of equity, Is Shares outstanding, no 200,000 Tax rate, T (federal-plus-state) 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 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 7%. 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 is 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. $
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