Question
Lemansky Enterprises is considering a change from its current capital structure. The company currently has an all-equity capital structure and is considering a capital structure
Lemansky Enterprises is considering a change from its current capital structure. The company currently has an all-equity capital structure and is considering a capital structure with 25 percent debt. There are currently 8,400 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $47,000. The interest rate on new debt is 7 percent, and there are no taxes. Rebecca owns $20,000 worth of stock in the company. If the firm has a 100 percent payout, what is her cash flow? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. What would her cash flow be under the new capital structure assuming that she keeps all of her shares? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Suppose the company does convert to the new capital structure. How many shares should Rebecca sell to maintain her current cash flow?
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