The purpose of this assignment is to explain core concepts related to business risk and recommend sound financial decisions based on analysis of a firm’s capital structure and capital budgeting techniques.Read the Chapter 15 Mini Case on page 651-652 in Financial Management: Theory and Practice. Using complete sentences and academic vocabulary, please answer questions a and b.Using the mini case information, write a 250-500 word recommendation of the financial decisions you propose for this company based on an analysis of its capital structure and capital budgeting techniques. Explain why you chose this recommendation.While APA style is not required for the body of this assignment, solid academic writing is expected, and documentation of sources should be presented using APA formatting guidelines, which can be found in the APA Style Guide, located in the Student Success Center.This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.Rubric:Benchmark – Mini Case 6 1Unsatisfactory0.00%2Less than Satisfactory74.00%3Satisfactory79.00%4Good87.00%5Excellent100.00%100.0 %Content 30.0 %Question AAnswer to question A is not included.Answer to question A is incomplete or incorrect.Answer to question A is included but lacks explanation and relevant supporting details.Answer to question A is complete and includes relevant supporting details.Answer to question A is extremely thorough and supported with substantial relevant details.30.0 %Question BAnswer to question B is not included.Answer to question B is incomplete or incorrect.Answer to question B is included but lacks explanation and relevant supporting details.Answer to question B is complete and includes relevant supporting details.Answer to question B is extremely thorough and supported with substantial relevant details.30.0 %Financial Decisions (C. 3.1)Recommendations for proposed financial decisions based on analysis of capital structure and capital budgeting techniques are not included.Recommendations for proposed financial decisions based on analysis of capital structure and capital budgeting techniques are incomplete or incorrect.Recommendations for proposed financial decisions based on analysis of capital structure and capital budgeting techniques are included but lack explanation and supporting details and examples.Recommendations for proposed financial decisions based on analysis of capital structure and capital budgeting techniques are complete and include supporting details and examples.Recommendations for proposed financial decisions based on analysis of capital structure and capital budgeting techniques are extremely thorough and include substantial supporting details and examples.10.0 %Mechanics of Writing (includes spelling, punctuation, grammar, language use)Surface errors are pervasive enough that they impede communication of meaning. Inappropriate word choice or sentence construction is used.Frequent and repetitive mechanical errors distract the reader. Inconsistencies in language choice (register) or word choice are present. Sentence structure is correct but not varied.Some mechanical errors or typos are present, but they are not overly distracting to the reader. Correct and varied sentence structure and audience-appropriate language are employed.Prose is largely free of mechanical errors, although a few may be present. The writer uses a variety of effective sentence structures and figures of speech.Writer is clearly in command of standard, written, academic English.100 %Total Weightage
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Mini Case
Assume you have just been hired as a business manager of PizzaPalace,
a regional pizza restaurant chain. The company’s EBIT was $50 million
last year and is not expected to grow. The firm is currently financed
with all equity, and it has 10 million shares outstanding. When you took
your corporate finance course, your instructor stated that most firms’
owners would be financially better off if the firms used some debt.
When you suggested this to your new boss, he encouraged you to
pursue the idea. As a first step, assume that you obtained from the firm’s
investment banker the following estimated costs of debt for the firm at
different capital structures:
Percent Financed with
Debt,
0%

20
8.0%
30
8.5
40
10.0
50
12.0
If the company were to recapitalize, then debt would be issued and the
funds received would be used to repurchase stock. PizzaPalace is in the
40% state-plus-federal corporate tax bracket, its beta is 1.0, the riskfree rate is 6%, and the market risk premium is 6%.
a.Using the free cash flow valuation model, show the only avenues by
which capital structure can affect value.
b.
1.What is business risk? What factors influence a firm’s business
risk?
2.What is operating leverage, and how does it affect a firm’s
business risk? Show the operating break-even point if a company has
fixed costs of $200, a sales price of $15, and variable costs of $10.

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