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 50 percent debt. There are currently 4,000 shares outstanding at a price per share of $80. EBIT is expected to remain constant at $32,960. The interest rate on new debt is 9 percent and there are no taxes. a. Rebecca owns $28,000 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. 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, 32.16. c. 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. Answer is complete but not entirely correct. 2,884.00 1,442.00 x 700 x a. Shareholder cash flow b. Shareholder cash flow c. Number of shares stockholder should sell S S

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 50 percent debt. There are currently 4,000 shares outstanding at a price per share of $80. EBIT is expected to remain constant at $32,960. The interest rate on new debt is 9 percent and there are no taxes. a. Rebecca owns $28,000 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. 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, 32.16. c. 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. Answer is complete but not entirely correct. 2,884.00 1,442.00 x 700 x a. Shareholder cash flow b. Shareholder cash flow c. Number of shares stockholder should sell S S

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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 with 50 percent debt. There are currently 4,000 shares outstanding at a price per share
of $80. EBIT is expected to remain constant at $32,960. The interest rate on new debt is 9 percent and there are no taxes.
a. Rebecca owns $28,000 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.
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, 32.16.
c. 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.
Answer is complete but not entirely correct.
2,884.00✔
1,442.00 X
700 X
a. Shareholder cash flow
b. Shareholder cash flow
c. Number of shares stockholder should sell
S
S

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