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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
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. a. 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. b. 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. c. Suppose the company does convert to the new capital structure. How many shares should Rebecca sell to maintain her current cash flow? a. Shareholder cash flow b. Shareholder cash flow c. Number of shares stockholder should sell
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