Slecat Corp. is in the 40% tax bracket and has a capital structure that is composed entirely of equity. They are considering altering its capital structure to take advantage of prevailing interest rates. After consulting with several investment bankers, they obtain a before-tax cost of debt estimate of 8% if they recapitalize to 40% debt and 60% equity. The firm will use the proceeds from the debt issuance to repurchase shares of common stock.

The corporation's existing stock has a beta of 1.6 on 20 million shares outstanding. Investors can earn a 4% rate of return on risk-free assets and a 14% rate of return on the market.

Slecat's expected free cash flows next year are $80 million. These cash flows are expected to grow at a rate of 5% for the forseeable future. The company currently has no short-term investments nor preferred stock outstanding.

How much is available for distribution to Slecat's shareholders after the recapitalization (i.e. after the proceeds from the debt issue have been used to repurchase common stock)?

		$376.18 million
		$519.70 million
		$602.44 million
		$880.96 million

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