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##### GB550 unit6 Assignment

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Question;GB550 unit6 AssignmentGB:550 Unit 6 Assignment;Chapter 13;Question 13-5 Pg. 548;How is it possible for an employee stock option to be;valuable even if the firm?s stock price fails to meet shareholders?;expectations?;Chapter 15;Problem 15-8 Pg. 633-634;The Rivoli;Company has no debt outstanding, and its financial position is given by the;following data;Assets;(book=market) \$3,000,000;EBIT \$500,000;Cost of;Equity, rs 10%;Stock Price;P0 \$15;Shares;Outstanding, n0 200,000;Tax Rate, T;(Federal-plus-State) 40%;The firm 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 will increase to 11% to reflect the increased risk. Bonds can be sold;at a cost of 7%. Rivoli is a no-growth firm. Hence, all its earnings are paid;out as dividends. Earnings are expected to be constant over time.;a.;What effects would this use of leverage have on;the value of the firm?;b.;What would be the price of Rivoli?s stock?;c.;What happens to the firm?s earnings per share;after the recapitalization?;d.;The \$500,000 EBIT given previously is actually;the expected value from the following probability distribution;Probability EBIT;0.10 (\$ 100,000);0.20 200,000;0.40 500,000;0.20 800,000;0.10 1,100,000;Determine;the times-interest-earned ratio for each probability. What is the probability;of not covering the interest payment at the 30 % debt level?

Paper#51505 | Written in 18-Jul-2015

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