a)
To calculate: The cash flow of Person A, a shareholder of the company having 100 shares as per the current capital structure, and with an assumption that the company has a rate of dividend payment at 100%.
Introduction:
Leverage refers to the borrowing of amount or debt to utilize for the purchase of equipment, inventory, and other assets of the company.
b)
To calculate: The cash flow of Person A as per the proposed capital structure assuming that she has the same 100 shares.
Note: It is necessary to compute EPS under the planned capital structure to calculate the cash flow.
Introduction:
Leverage refers to the borrowing of amount or debt to utilize for the purchase of equipment, inventory, and other assets of the company.
c)
To calculate: How Person A would convert her shares to re-establish the original capital structure.
Introduction:
Leverage refers to the borrowing of amount or debt to utilize for the purchase of equipment, inventory, and other assets of the company.
d)
To explain: The reason for the irrelevance in the capital structure of the company.
Introduction:
Leverage refers to the borrowing of amount or debt to utilize for the purchase of equipment, inventory, and other assets of the company.
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Corporate Finance Southern Connecticut State University
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