Cash flow be under the proposed capital structure

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San Berdoo, Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 20 percent debt. Currently, there are 11,000 shares outstanding, and the price per share is $58. EBIT is expected to remain at $24,200 per year forever. The interest rate on new debt is 7.5 percent, and there are no taxes.

If you own 200 shares of the stock, what is your cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100%?

What will your cash flow be under the proposed capital structure?

If you wanted to unlever your shares and recreate the original capital structure, what would you do and what would be the resulting cash flow?

Reference no: EM131499578

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