Mary owns 100 percent of a gift shop with an equity value of $150,000.If she keeps the shop open 5 days a week,EBIT is $75,000.If the shop remains open 6 days a week,EBIT increases to $92,000 annually.Mary needs an additional $50,000 which she can raise today by either selling stock or issuing debt at an interest rate of 7 percent.The principal amount would be repaid at the end of the fifth year.Ignore taxes.What will be the cash flow for this year to Mary if she issues debt,remains open 6 days a week,and distributes all the residual cash flow to the shareholders?
A)$46,125
B)$88,500
C)$65,000
D)$71,500
E)$81,500

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The Answer of Mary owns 100 percent of a gift shop with an equity value of $150,000.If she keeps the shop open 5 days a week,EBIT is $75,000.If the shop remains open 6 days a week,EBIT increases to $92,000 annually.Mary needs an additional $50,000 which she can raise today by either selling stock or issuing debt at an interest rate of 7 percent.The principal amount would be repaid at the end of the fifth year.Ignore taxes.What will be the cash flow for this year to Mary if she issues debt,remains open 6 days a week,and distributes all the residual cash flow to the shareholders?
A)$46,125
B)$88,500
C)$65,000
D)$71,500
E)$81,500

Mary Owns 100 Percent of a Gift Shop with an Equity