Smith, a shareholder of the firm, owns 80 shares of stock. What is his cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent?
b. What will Mr. Smith’s cash flow be under the proposed capital structure of the firm? Assume that he keeps all 80 of his shares. c. Suppose Buckner and Durham does convert, but Mr. Smith prefers the current all-equity capital structure. Show how he could unlever his shares of stock to recreate the original capital structure. d. Using your answer in part (c), explain why Buckner and Durham’s choice of capital structure is irrelevant.
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