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Erin Enterprises is considering a change from its current capital structure. The company currently has an...

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Finance

Erin Enterprises is considering a change from its currentcapital structure. The company currently has an all-equity capitalstructure and is considering a capital structure with 30 percentdebt. There are currently 3,600 shares outstanding at a price pershare of $60. EBIT is expected to remain constant at $32,928. Theinterest rate on new debt is 6 percent and there are notaxes.

a. Rebecca owns $18,000 worth of stock in thecompany. If the firm has a 100 percent dividend payout, what is hercash flow? (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)

b. What would her cash flow be under the newcapital structure assuming that she keeps all of her shares?(Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)

c. Suppose the company does convert to the new capitalstructure. Show how Rebecca can maintain her current cash flow.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)

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