Question: A firm is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 6,500 shares

6,500 shares outstanding and the price per share is $51. EBIT is

A firm is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 6,500 shares outstanding and the price per share is $51. EBIT is expected to remain at $41,000 per year forever. The interest rate on new debt is 8 percent, and there are no taxes. a. Jane, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Company pays out all earnings as dividend. 4 No retained earnings.) capital structure of the firm? Assume she keeps all 100 of her shares. c. Assume that Jane unlevers her shares and ro_roatos Question 2 From Question 1, use the M\&M Proposition I to find the price per share of equity under each of the proposed plans. What is the value of the firm? Price per share Value of firm (I) Value of firm (II) A firm is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 6,500 shares outstanding and the price per share is $51. EBIT is expected to remain at $41,000 per year forever. The interest rate on new debt is 8 percent, and there are no taxes. a. Jane, a shareholder of the firm, owns 100 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Company pays out all earnings as dividend. 4 No retained earnings.) capital structure of the firm? Assume she keeps all 100 of her shares. c. Assume that Jane unlevers her shares and ro_roatos Question 2 From Question 1, use the M\&M Proposition I to find the price per share of equity under each of the proposed plans. What is the value of the firm? Price per share Value of firm (I) Value of firm (II)

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