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The Rivoli Company has no debt outstanding, and its financial position is given by the following data: Expected EBIT $ 5 0 0 , 0
The Rivoli Company has no debt outstanding, and its financial position is given by the following data:
Expected EBIT $
Growth Rate in EBIT, g $
Cost of equity, rs
Shares outstanding, n
Tax rate, T federalplusstate
The firm is considering selling bonds and simultaneously repurchasing some of it stock. If it moves to a capital structure with debt based on market values, its cost of equity, rs will increase to to reflect the increased risk. Bonds can be sold at a cost, rd of Based upon the new capital strucutre, what is the new weighted average cost of capital? What is the levered value of the firm? What is the amount of debt? Based upon the new capital structure, what is the new stock price? What is the remaining number of shares? What is the new earnings per share?
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