Staal Enterprises is considering a change from its current capital structure. Staal currently has an all-equity capital

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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 35% debt. There are currently 6500 shares outstanding at a price per share of $50. EBIT is expected to remain constant at $89,856. The interest rate on new debt is 6% and there are no taxes.

Required:

(a) Rebecca owns $10,000 worth of stock in the company. If the firm has a 100% payout, what is her cash flow?

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

(c)Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow-what number of shares should she sell?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...

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a Computation of the Cash Flow The earnings per share are EBIT Total Outstanding Shares EPS 89586 65...View the full answer

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Essentials of Corporate Finance

ISBN: 978-0078034756

8th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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Question Posted: Jun 14, 2012 07:45 AM

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Staal Enterprises is considering a change from its current capital structure. Staal currently has an all-equity capital

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a Computation of the Cash Flow The earnings per share are EBIT Total Outstanding Shares EPS 89586 65...View the full answer

Essentials of Corporate Finance

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