Staal Enterprises is considering a change from its current capital structure. St

Question

Staal Enterprises is considering a change from its current capital structure. Staal currently has an all-equity capital structure and is considering a capital structure with 30 percent debt. There are currently 10,400 shares outstanding at a price per share of $30. EBIT is expected to remain constant at $33,904. The interest rate on new debt is 9 percent and there are no taxes.

Rebecca owns $24,000 worth of stock in the company. If the firm has a 100 percent payout, what is her cash flow?(Do not include the dollar sign ($).Round your answer to 2 decimal places (e.g., 32.16).)

What would her cash flow be under the new capital structure assuming that she keeps all of her shares?(Do not include the dollar sign ($). Round your answer to 2 decimal places (e.g., 32.16).)

Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow.

Please help with Part B, I am stuck! Thank you.

Explanation / Answer

b) no. of shares Rebekka has =24000/30=800

under new capital structure = amount payable due to debt =.09*.3*10400*30= 8424

EBT(earning after interest payment)=33904-8424=25480

now due to 30% debt there will be 30% reduction in the shares

therefore, earlier there were 10400 shares but now , they will have 10400*.7=7280

earning per share =25480/7280=3.5

rebecca has 800 shares

therefore cash flow of rebecca is =800*3.5 =2800

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