Conspicuous Consumption Inc, a prominent consumer products firm is debating whether or not to convert its all equity capital structure to one that is 30 percent debt. Currently there are 18000 shares outstanding and the price per share is $49. EBIT is expected to remain at $63000 per year forever. The interest rate on new debt is 10% and there are no taxes.

a. Mrs Brown, a shareholder of the firm, owns 250 shares of stock, What is her cash flow under the current capital structure, assuming the firm has a dividend payout of 100%?

b. What will Mrs. Browns cash flow be under the proposed capital structure of the firm? Assume she keeps all 250 of her shares.

c. Assume that Mrs Brown unlevers her shares and re-creates the original capital structure. What is her cash flow now?