Questions for Case Study 3 Hill Country Snack Foods

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QUESTIONS FOR THE ‘HILL COUNTY SNACK CO’ CASE STUDY (TO BE ANSWERED IN THE STUDENT GROUP REPORTS) In your group report, you should attempt to answer the following questions. For each question, a few paragraphs or sentences should be enough; I should stress that I am more interested in understanding the quantitative analysis or reasoning that led you to your answer in the report, than in the numerical accuracy of the answer (not that the latter is not important at all!). It is recommended that you upload to moodle any files that might facilitate me in understanding your answers (e.g. excel worksheets with computations of intermediate steps, etc.) Questions 1. How much business risk does Hill County face? How much financial risk would the company face at each of the three alternative debt-to-capital ratios presented in Exhibit 4? How much value could Hill County create for its shareholders at each of the three alternative debt levels? 2. What debt-to-capital structure would you recommend as optimal for Hill County? What are the advantages of adding debt to the capital structure? How would issuing debt impact the company’s taxes and expected costs of financial distress? How would the financial markets react if the company increased its financial leverage? 3. How could Hill County implement a more aggressive capital structure? What methods could be used to increase debt and decrease equity? 4. Considering Hill County’s corporate culture, what arguments could you use to persuade CEO Keener or his successor to adopt and implement your recommendation?…...

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