(13-5) You are given the following forecasted information for the year 2014: sales = $300,000,000, operating profitability (OP) = 6% capital requirement (CR) = 43%, growth (g) = 5% and the weight average cost of capital (WACC) = 9.8%. If these values remain constant, what is the horizon value (i.e., the 2014 value of operations)? (15-8)The Rivoli Company has no debt outstanding, and its financial position is given by the following data:Assets (book =market) $300,000EBIT $500,000$10%Stock price, P0 $15Shares outstanding, no $200,000Tax rate, T (federal-plus-state) 40%The firm is considering selling bonds and simultaneously repurchasing some its stock. If it moves to a capital structure with 30% debt based on market values, its cost of equality, rs, will increase to 11% to reflect the increased risk. Bonds can be sold at cost, rd, of 7%. Rivoli is a no-growth firm. Hence, all its earning are paid out as dividends. Earning are expected to be constant over time. A What effect would this use of leverage have on the value of the firm?B What would be the price of Raviolis stock?C What is happens to the firms earning per share after the recapitalization?D The $500,000 EBIT given previously is actually the expected value from the following probability distribution. EBIT($100,000)200,000500,000800,0001,100,000Determine the times-interest earned ratio for each probability. What is the probability of not covering the interest payment at the $30% debt level?Problem (13-5)You are given the following forecasted information for the year 2014: sales = $300,000,000,operating profitability (OP) = 6% capital requirement (CR) = 43%, growth (g) = 5% and the…

# 30% debt level

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