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question 1 ( 55 marks ) please all steps and explain very deep BTA plc,...

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Accounting

question 1 ( 55 marks ) please all steps and explain very deep

BTA plc, a technology products firm, is debating whether to convert its all-equity capital structure to one that has 30% debt. Currently there are 4,000 shares outstanding and the share price is 52. EBIT is expected to remain at 24,000 per year forever. The interest rate on new debt is 9% and there are no taxes.

i. Under the current capital structure, show the cash flow for a shareholder of the firm who owns 1000 shares of equity, assuming the firm has a dividend payout rate of 20% (25 marks)

ii. What will the shareholders cash flow be under the new capital structure of the firm? Assume the investor will keep her 1000 shares (30 marks)

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