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.

If the company were to recapitalize, then the debt would be issued and the funds received would be used to repurchase stock. Pizza Palace is in the 40% state-plus-federal corporate tax bracket, its beta is 1.0, the risk-free 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 firms business risk?

(2) What is operating leverage, and how does it affect a firms 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.

Please show formulas