Seether, Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 35 percent debt. Currently, there are 8,000 shares outstanding, and the price per share is $55. EBIT is expected to remain at $32,000 per year forever. The interest rate on new debt is 8 percent, and there are no taxes.
Required :
(a) Allison, a shareholder of the firm, owns 100 shares of stock. Her cash flow is $ ___under the current capital structure, assuming the firm has a dividend payout rate of 100 percent. (Do not include the dollar sign ($).)
(b) Allison's cash flow will be $ ___under the proposed capital structure of the firm. Assume she keeps all 100 of her shares.(Do not include the dollar sign ($). Round your answers to 2 decimal places. (e.g.,16.32))
(c) Suppose the company does convert, but Allison prefers the current all-equity capital structure. She could unlever her shares of stock to recreate the original capital structure by selling ___ shares of stock and lending the proceeds at 8 percent