17. Shopifeye Inc. is debating whether to convert its all-equity capital structure to one that...
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17. Shopifeye Inc. is debating whether to convert its all-equity capital structure to one that is 25% debt. There are currently 400,000 shares outstanding and the price per share is $40. EBIT is expected to remain at $720,000 per year forever. The interest rate on new debt is 6% and it is a perfect capital market. A potential shareholder of the firm has $18,000 to invest in the company. Suppose the firm does not convert but she prefers the proposed capital structure with debt. What strategy would she use to achieve her desired cash flows? A) Borrow $6,000 at 6% interest and buy 150 shares in the firm. B) Borrow $10,000 at 6% interest and buy 250 shares in the firm. C) Borrow $4,000 at 6% interest and buy 100 shares in the firm. D) Borrow $6,000 at 6% interest and buy 600 shares in the firm, E) None of the above
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