Question 1 (18M) KK Mall, an online department store, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently there are 100,000 shares outstanding and the price per share is $40. EBIT is expected to remain at $440,000 per year forever. The interest rate on new debt is 8 percent, and there are no taxes. a. If the firm has a 100% dividend payout rate, what is the cash flow under the current capital structure to a shareholder (Mr. S) of the firm owning 500 shares of stock? (2M) b. Assume Mr. S keeps all 500 of his shares. What will his cash flow be under the proposed capital structure of the firm? (7M) c. Suppose Mr. S prefers the current all-equity capital structure, but KK Mall does convert. Show how he could unlever his shares of stock to recreate the original capital structure. (7M) d. Using your answer to part (c), is KK Mall's choice of capital structure relevant? Explain. (2M)