FCOJ, Inc., a prominent consumer products firm, is debatingwhether to convert its all-equity capital structure to one that is20 percent debt. Currently, there are 6,000 shares outstanding, andthe price per share is $60. EBIT is expected to remain at $23,400per year forever. The interest rate on new debt is 5 percent, andthere are no taxes.

a.	Allison, a shareholder of the firm, owns 150 shares of stock.What is her cash flow under the current capital structure, assumingthe firm has a dividend payout rate of 100percent? (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.)
b.	What will Allison’s cash flow beunder the proposed capital structure of the firm? Assume she keepsall 150 of her shares. (Do not round intermediatecalculations and round your answer to 2 decimal places, e.g.,32.16.)
c.	Assume that Allison unlevers hershares and re-creates the original capital structure. What is hercash flow now? (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)

Answer rating: 100% (QA)

a Allison owns 150 shares The company has 6000 shares total Allisons ownership percent... View the full answer