FCOJ, Inc., a prominent consumer products firm, is debatingwhether to convert its all-equity capital structure to one
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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.) |
Related Book For
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
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