b)
1)
Case summary:
Company P is a regional pizza restaurant chain. The given details are as follows,
EBIT is $120 million,
Tax rate is 25%,
Risk-free
Market risk premium is 6%,
Outstanding shares 10 million.
As of now company is financed with equity only, there is no debt. Now, the company wanted to raise capital by using some debt. When the company were to recapitalize, then debt would be issued, and funds received would be used as repurchase stock.
To discuss: Business risk and factors influence firm’s business risk.
2)
To discuss: Operating leverage and factors influencing operating leverage and calculate the operating leverage when fixed costs are $200, sale price is $15, and variable cost is $10.
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Chapter 15 Solutions
Mindtap For Brigham/ehrhardt's Financial Management: Theory & Practice, 1 Term Printed Access Card (mindtap Course List)
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