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 5,000 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $29,680. The interest rate on new debt is 11 percent and there are no taxes. a. Rebecca owns $10,000 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.
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 5,000 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $29,680. The interest rate on new debt is 11 percent and there are no taxes. a. Rebecca owns $10,000 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.
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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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 5,000 shares outstanding at a price per share
of $50. EBIT is expected to remain constant at $29,680. The interest rate on new debt is 11 percent and there are no taxes.
a. Rebecca owns $10,000 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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