Q1 An American firm is currently considering changing its all-equity capital structure to one that is 20 percent debt. Currently, there are 1,000,000 shares outstanding, and the price per share is USD 75. EBIT is expected to remain at USD 2,500,000 per year forever. The interest rate on new debt is 7 percent, and there are no taxes. The firm's dividend payout rate is 100 percent. Suppose that a shareholder of the firm, owns 100 shares of stock. Calculate his/her cash flow under the current capital structure and under the proposed capital structure! Assume that s/he keeps all 100 of his/her shares. (4 points)

Q2. Buch GmbH is a Switzerland firm located in Zurich. The firm has declared a EUR 6.40 per share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15 percent. New regulations require that taxes be withheld at the time the dividend is paid. The firm's stock is sold for EUR 71.00 per share, and the stock is about to go ex-dividend. Calculate what the ex-dividend price will be! (3 points)