Pagemaster Enterprises is considering a change from its current The company currently has an all-equity and is considering a with 25 percent debt. There are currently 8,100 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $44,000. The interest rate on new debt is 7 percent and there are no taxes.
a. Rebecca owns $17,000 worth of stock in the company. If the firm has a 100 percent payout, what is her cash flow?
b. What would her cash flow be under the new assuming that she keeps all of her shares?
c. Suppose the company does convert to the new Show how Rebecca can maintain her current cash flow.
d. Under your answer to part (c), explain why the company’s choice of is irrelevant.
