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Star, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 20 percent debt.

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Star, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 20 percent debt. Currently there are 3,000 shares outstanding and the price per ahare is 540. EBIT is expected to remain at $24,000 per year forever. The interest rate on new debt is 8 percent, and there are no taxes. Ms. Brown, a shareholder of the firm, owns 100 shares of stock. What is her rate of return under the curtent capital structure, assuming the firm has a dividend payout rate of 100 percent? 20.25% 100% 20% 18.75% 5%

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