Vijay Lemansky Enterprises is considering a change from its current capital structure. The company currently has an all-equity capitalstructure and is considering a capital structure with 35 percent debt. There are currently 10,560 shares outstanding at a price pershare 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 flowb. Shareholder cash flowc. Number of shares stockholder should sell

The objective of the question is to calculate the cash flow for Rebecca under the current and…

Answered: Lemansky Enterprises is considering a…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter15: Dividend Policy

Section: Chapter Questions

Problem 4P

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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 40 percent debt. There are currently 4,350 shares outstanding at a price per share of $25. EBIT is expected to remain constant at $21,830. The interest rate on new debt is 6 percent and there are no taxes. a. Rebecca owns $29,000 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…
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