MBA plc, an education technology firm, is debating whether to convert its all equity capital structure to one that has 25% debt. Currently there are 3,000 shares outstanding and the share price is 45. EBIT is expected to remain at 18,000 per year forever. The interest rate on new debt is 8% and there are no taxes.

i. Under the current capital structure, show the cash flow for a shareholder of the firm who owns 800 shares of equity, assuming the firm has a dividend payout rate of 20%.

ii. What will the shareholders cash flow be under the new capital structure of the firm? Assume the investor will keep her 800 shares and that the dividend payout is still 20%.