Beauport Inc, a prominent consumer products firm, is debating whether to convert its all equity capital structure to one that is 30% debt. Currently, there are 6500 shares outstanding and price per share is $45. EBIT is expected to remain at $29,000 per year forever. The interest rate on new debt is 8% and there are no taxes.

Frances, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure assuming the firm has a dividend payout rate of 100%.

a) $446

b) $100

c) $81

d) $768

A is correct