None Finch, Incorporated, is debating whether to convert its all-equity capital structure to onethat is 25 percent debt. Currently, there are 15,000 shares outstanding, and the price pershare is $38. EBIT is expected to remain at $48,000 per year forever. The interest rateon new debt is 9.5 percent, and there are no taxes.a. Allison, a shareholder of the firm, owns 200 shares of stock. What is her cash flowunder the current capital structure, assuming the firm has a dividend payout rate of100 percent? (Do not round intermediate calculations and round your answer to 2decimal places, e.g., 32.16.)b. What will Allison's cash flow be under the proposed capital structure of the firm?Assume she keeps all 200 of her shares. (Do not round intermediate calculationsand round your answer to 2 decimal places, e.g., 32.16.)c. Assume that Allison unlevers her shares and re-creates the original capital structure.What is her cash flow now? (Do not round intermediate calculations and round youranswer to 2 decimal places, e.g., 32.16.)a. Cash flowb. Cash flowc. Cash flow

The optimal capital structure is a critical financial concept for organizations, indicating the best…

Answered: Finch, Incorporated, is debating…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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