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

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Finance

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% debt.There are currently 4,500 shares outstanding at a price per shareof $60. EBIT is expected to remain constant at $33,000. Theinterest rate on the new debt is 7% and there are no taxes.

a) Rebecca owns $18,000 worth of stock in the company. If thefirm has a 100% payout, what is her cash flow?

b) What would her cash flow be under the new capital structureassuming that she keeps all of her shares?

c) Suppose the company does convert to the new capitalstructure. Show how Rebecca can maintain her current cash flow.

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