Beauport inc a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 30 percent debt. currently, there are 6500 shares outstanding, and the price per share is 45. EBIT is expected to remain at 29000 per year forever. The interest rate on new debt is 8 percent, and thre are no taxes
a) Denise, a shareholder of the firm, owns 100 share of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent?
b) What will Denise's cash flow be under the proposed capital struture of the firm?assume she keeps all 100 shares
c) Suppose the company does convert, but Denise prefers the current all-equity capital structure. Show how she could unlever her shares of stock to recreate the original capital struture.
d) Using your answer to part (c), explain why the company's choice of capital structure is irrelevant.