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Finch, Incorporated, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 12,000 shares
Finch, Incorporated, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 12,000 shares outstanding and the price per share is $81. EBIT is expected to remain at $57,600 per year forever. The interest rate on new debt is 6 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? Note: Do not round intermediate calculations and round your answer to 2 decimal 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. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16
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