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 35 percent debt. There are currently 10,560 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $60,696. The interest rate on new debt is 5 percent and there are no taxes. a. Rebecca owns $22,000 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. a. Shareholder cash flow b. Shareholder cash flow c. Number of shares stockholder should sell
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 35 percent debt. There are currently 10,560 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $60,696. The interest rate on new debt is 5 percent and there are no taxes. a. Rebecca owns $22,000 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. a. Shareholder cash flow b. Shareholder cash flow c. Number of shares stockholder should sell
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
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Transcribed Image Text: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 35 percent debt. There are currently 10,560 shares outstanding at a price per
share of $50. EBIT is expected to remain constant at $60,696. The interest rate on new debt is 5 percent and there are no taxes.
a. Rebecca owns $22,000 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.
a. Shareholder cash flow
b. Shareholder cash flow
c. Number of shares stockholder should sell
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