Capital Structure in Perfect Markets The following information applies to the next TWO questions: Lacuna Inc is an all-equity medical technology firm that specializes in devices used for the erasure of a patient's unwanted memories through targetted brain damage. The firm currently trades at a total market value of $250.00 million with its pre- tax operating income (i.e. EBIT) projected to be $36.75 million each year forever. The firm has historically had a one-hundred percent dividend payout ratio and intends to maintain this policy going forward. Assume that Lacuna Inc exists in a world of perfect capital markets. Lacuna Inc is considering undertaking a leveraged recapitalization by borrowing $80.00 million of debt to repurchase some of its 10.0 million shares outstanding. The firm can arrange this debt financing at an interest cost of 4.20% per annum. Question 1 Clementine is an investor that currently owns 500 shares of Lacuna Inc. Assuming that Clementine has none of her shares repurchased by Lacuna Inc, which of the following is closest to the total dividends that she can expect to receive each year after the firm has conducted the leveraged recapitalization? a. $2,455.15 b. $2,702.21 c. $2,120.75 d. $1,929.48 e. $1,669.50 Question 2 Assume that Lacuna Inc proceeds with the leveraged recapitalization proposal and that Clementine does not like the firm's capital structure change. Which of the following are the actions that Clementine must take in order to receive as close as possible to the same annual cash flows that she would have received under Lacuna Inc's original, all-equity capital structure? a. borrowing $5.875.00 and buying 235 shares of stock b. selling 265 shares of stock and lending $6,625.00 C. selling 235 shares of stock and lending $5.875.00 d. borrowing $6,625.00 and buying 265 shares of stock e. selling 230 shares of stock and lending $5,750.00 f. borrowing $4,000.00 and buying 160 shares of stock 8. selling 340 shares of stock and lending $8,500.00 h. selling 160 shares of stock and lending $4,000.00 i. borrowing $8,500.00 and buying 340 shares of stock