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As you prepare the case, consider the following questions/issues: 1. How much business risk does Tonka face?
As you prepare the case, consider the following questions/issues: 1. How much business risk does Tonka face? 2. How much potential value, if any, can Tonka create for shareholders at each of the proposed levels of debt? How would leveraging up affect the firm"s taxes? 3. How much financial risk does Tonka face at each of the proposed levels of debt in case Exhibit 12? How would the capital markets react to a decision by the company to increase the use of debt in their capital structure? 4. What target capital structure would you recommend? What argument (s) would you advance to persuade the firm to adopt your recommendations?
