What is her cash flow under current capital structure

Assignment Help Financial Management

Reference no: EM131558519

Desert Rose, Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 5,000 shares outstanding, and the price per share is $86. EBIT is expected to remain at $26,000 per year forever. The interest rate on new debt is 4.5 percent, and there are no taxes.

a. Allison, a shareholder of the firm, owns 150 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Cash flow $

b. What will Allison’s cash flow be under the proposed capital structure of the firm? Assume she keeps all 150 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Cash flow $

c. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Total Cash flow $

Reference no: EM131558519

Questions Cloud

Required returns for common stock-preferred stock and debt : Assume the company’s tax rate is 30%. What are the required returns for Common Stock, Preferred Stock and Debt?

What is the aftertax salvage value of the fixed asset : What is the aftertax salvage value of the fixed asset? What is the operating cash flow of the project?

Calculate the theoretical put option price : use the Black-Scholes Model to calculate the theoretical Put option price [i.e., price of the Put Option Contract]

Compute price of european put option that expires in a year : Compute the price of a European put option that expires in a year.

What is her cash flow under current capital structure : What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent?

What would be payoff per share to james on expiration day : what would be the payoff per share to James on the expiration day? Assume there was no dividend or early exercise of the option.

Difference in the annual inflation rates : What is the difference in the annual inflation rates for the United States and Russia over this period?

What is the annual ordering cost of the post card inventory : What is the annual ordering cost of the post card inventory?

What is the after-tax free-cash flow for year five : what is the after-tax free-cash flow for year five, given a tax rate of 40%? What is the free cash flow?

User Account

All Pages