FCOJ, Inc., a prominent consumer products firm, is debatingwhether or not to convert its all-equity capital structure to onethat is 35 percent debt. Currently, there are 6,900 sharesoutstanding and the price per share is $59. EBIT is expected toremain at $26,220 per year forever. The interest rate on new debtis 10 percent, and there are no taxes.

a. Melanie, a shareholder of the firm, owns 180shares of stock. What is her cash flow under the current capitalstructure, assuming the firm has a dividend payout rate of 100percent? (Do not round intermediate calculations and roundyour answer to 2 decimal places, e.g., 32.16.)
  
Shareholder cash flow           $

b. What will Melanie’s cash flow be under theproposed capital structure of the firm? Assume that she keeps all180 of her shares. (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g.,32.16.)
  
Shareholder cash flow           $

c. Suppose FCOJ does convert, but Melanie prefers thecurrent all-equity capital structure. Show how she could unleverher shares of stock to recreate the original capital structure.(Do not round intermediate calculations and round youranswer to the nearest whole number, e.g., 32.)

Number of shares stockholder should sell