CPATrader

It has no effect.

Just do a simple scenario analysis (simplified to ignore WCInv, FCInv and NCC since they aren't relevant --- and we all know dividends dont impact FCFF or FCFE):

Before issuing debt to pay dividends:

EBIT = 50
Int = 10
EBT = 40
Tax (@20%) = 8
Net Income = $32

FCFF = Net Income + Int (1 - tc) + NWInv + FCInv + NCC
FCFF = 32 + (0.8)*(10) + 0 + 0 + 0
FCFF = $40

Now I issue $100 in debt @ 10% to pay dividends:

EBIT = 50
Int = 20 [10 + (0.1 * 100) = 20]
EBT = 30
Tax (@20%) = 6
Net Income = $24

FCFF = Net Income + Int (1 - tc) + NWInv + FCInv + NCC
FCFF = 24 + (0.8)*(20) + 0 + 0 + 0
FCFF = 24 + 16
FCFF = $40

Voila.