Pagemaster Enterprises is considering a change from its current
capital structure. The company currently has an...
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Pagemaster Enterprises is considering a change from its currentcapital structure. The company currently has an all-equity capitalstructure and is considering a capital structure with 25 percentdebt. There are currently 4,500 shares outstanding at a price pershare of $60. EBIT is expected to remain constant at $33,000. Theinterest rate on new debt is 7 percent and there are no taxes.
a.
Rebecca owns $18,000 worth of stock in the company. If the firmhas a 100 percent payout, what is her cash flow? (Do notround intermediate calculations and round your answer to 2 decimalplaces, 32.16.)
b.
What would her cash flow be under the new capital structureassuming that she keeps all of her shares? (Do not roundintermediate calculations and round your answer to 2 decimalplaces, 32.16.)
c.
Suppose the company does convert to the new capital structure.Show how Rebecca can maintain her current cash flow. (Donot round intermediate calculations and round your answer to 2decimal places, 32.16.)
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