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What will ms brown cash flow be

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Question - FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 35 percent debt. Currently there are 5,000 shares outstanding and the price per share is $49. EBIT is expected to remain at $43,600 per year forever. The interest rate on new debt is 7 percent and there are no taxes.

a. Ms. Brown, 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?

b. What will Ms. Brown's cash flow be under the proposed capital structure of the firm? Assume that she keeps all 100 of her shares.

c. Assume that Ms. Brown unlevers her shares and re-creates the original capital structure. What is her cash flow now?

Reference no: EM132954626

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