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FCOJ, Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure...

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Finance

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 12,000 shares outstanding,and the price per share is $87. EBIT is expected to remain at$25,200 per year forever. The interest rate on new debt is 8percent, and there are no taxes. a. Allison, a shareholder of thefirm, owns 250 shares of stock. What is her cash flow under thecurrent capital structure, assuming the firm has a dividend payoutrate of 100 percent? (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.) b. What willAllison’s cash flow be under the proposed capital structure of thefirm? Assume she keeps all 250 of her shares. (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.) c. Assume that Allison unlevers her sharesand re-creates the original capital structure. What is her cashflow now? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)

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