Finance:

ABC Incorporation is thinking of converting its all-equity structure of capital to 40% debt, 60% common equity. Currently, the companys 10,000 outstanding shares are trading in the market at $49 per share. Its EBIT is $87,200 per year and is expected to remain the same forever. If the company chooses to convert the all-equity stocks to debt, the interest rate on new debt would be 7%. The company is exempted to pay any tax due to its nature of business. All parts are interrelated. Values from one part can be used to answer other parts.

a) Ms. Saima, owns 200 shares of the company. What would be her total earnings under existing capital structure assuming that firm pays all its income as dividends?

b) How much debt the firm should raise in order to meet the requirement of the proposed capital structure?

c) How many shares firm would repurchase with the debt raised?