Corporate Finance Assignment: Risk and Capital Structure

This assignment analyzes the financial strategies of Hill Country Snack Foods, focusing on risk management and capital structure decisions. The student evaluates the impact of different debt-to-capital ratios (20%, 40%, and 60%) on the company's financial performance, including return on equity, bond ratings, and the weighted average cost of capital (WACC). The analysis considers business risk, financial risk, and interest coverage ratios, highlighting the trade-offs between debt financing and shareholder value. The assignment also explores the implications of increasing debt levels on interest expenses, tax benefits, and the overall capital structure, concluding that obtaining debt through bond issuance is more advantageous than bank loans due to flexibility in interest rates and payment terms.