Question
Rachel owns 100 percent of a gift shop with an equity value of $150,000. If she keeps the shop open 5 days a week,
Rachel owns 100 percent of a gift shop with an equity value of $150,000. If she keeps the shop open 5 days a week, EBIT is $75,000. If the shop remains open 6 days a week, EBIT increases to $92,000 annually. Rachel needs an additional $50,000 which she can raise today by either selling stock or issuing debt at an interest rate of 7 percent. The principal amount would be repaid in equal annual payments at the end of the next five years. Ignore taxes. What will be the cash flow for the next year to Rachel if she issues stock to another individual, remains open 5 days a week, and distributes all the residual cash flow to the shareholders? Multiple Choice O $92,000 O $61,333 $69,000 $42,000 $56.250
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Advanced Financial Accounting
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker
10th edition
78025621, 978-0078025624
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