The Jorgensen Corporation is debating whether to convert its current all-equity capital structure to one that is

Question:

The Jorgensen is debating whether to convert its current all-equity to one that is 40 percent debt. Currently; there are 100 shares outstanding and the price per share is $120. EBIT is expected to remain at $400 per year forever. The interest rate on the debt is 8 percent, and there are no taxes. Ms. Lyndi owns 10 shares.
a. What is Ms. Lyndi's cash flow under the current What will Ms. Lyndi's cash flow be under the proposed Assume that she
retains all 10 shares.
c. Suppose Jorgensen does convert, but Ms. Lyndi prefers the current Show how she could unlever her investment to re-create the original Explain why the Jorgensen chooses is irrelevant.
Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...