Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Finch, Incorporated, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 5,000
Finch, Incorporated, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 5,000 shares outstanding and the price per share is $60. EBIT is expected to remain at $25,000 per year forever. The interest rate on new debt is 6 percent, and there are no taxes. a. Allison, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. What will Allison's cash flow be under the proposed capital structure of the firm? Assume she keeps all 100 of her shares. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. a. Cash flow $ 500.00 b. Cash flow c. Cash flow $ EA 500.00
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started