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FCOJ, Inc., a prominent consumer products firm, is debating whether to convert its all- equity capital structure to one that is 30 percent debt. Currenty,
FCOJ, Inc., a prominent consumer products firm, is debating whether to convert its all- equity capital structure to one that is 30 percent debt. Currenty, there are 18,000 shares outstanding, and the price per share is $49. EBIT is expected to remain at $63,000 per year forever. The interest rate on new debt is 10 percent, and there are no taxes. a. Allison, 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 rate of 100 percent? (Do not round Intermedlete calculetlons and round your answer to 2 declmal places, e.g., 32.16.) b. What will Allison's cash flow be under the proposed capital structure of the firm? Assume she keeps all 250 of her shares. (Do not round Intermedlete calculetlons and round your answer to 2 declmal pleces, e.g., 32.16.) c. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round Intermedlete calculetlons and round your answer to 2 declmal places, e.g., 32.16.) a. Cash flow b. Cash flow c. Cash flow
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