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 4,500 shares outstanding at a price per share of $60. EBIT is expected to remain constant at $33,000. The interest rate on new debt is 7 percent and there are no taxes.
Rebecca owns $18,000 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, 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, 32.16.
Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow.
Note: Do not round intermediate calculations and round your answer to the nearest whole number, 32.
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