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Hill Country's CEO is yet again questioned by analysists and investor's

community about the firm's financial policies, and whether or not its capital structure is optimal. By increasing debt financing Hill Country could potentially provide a higher return to shareholders, while lowering the overall cost of capital and rerouting

cash flows from taxes to new investments. In light of a potential recapitalization, a

pro-forma is presented in case exhibit 5, with three potential capital structures to evaluate.

1. Based on Case Exhibit 1, how much business risk does Hill Country face?

Think low, medium, high.

Be specific by referencing the appropriate financial indicators to support your

argument.

2. In Case Exhibit 5, three capital structures are presented; at first glance, how

much financial risk will Hill Country face at any of the three proposed capital structures under study?

3. Using the template provided on Canvas Modules, calculate key financial metrics

given the three capital structures under study and compare with the most recent year end.

4. From your analysis in question 3, which capital structure proves most

beneficial? By what metrics?

What is your recommendation to Hill Country's CEO? Given the current corporate

culture of no debt financing, what arguments will you use to covey your recommendation?