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FCOK, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30% debt. Currently
FCOK, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30% debt. Currently there are 5,280 shares outstanding and the price per share is $32.51. EBIT is expected to remain at $57,063 per year forever. The interest rate on new debt is 9.28% and there are no taxes.
Ms. Brown, a shareholder of the firm, owns 138 shares of stock. What is her cash flow under the proposed capital structure (with the debt), assuming the firm has a dividend payout rate of 100%.
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