estin Corp. is comparing two different capital structures. Plan I would result i
ID: 2639521 • Letter: E
Question
estin Corp. is comparing two different capital structures. Plan I would result in 8,000 shares of stock and $80,000 in debt. Plan II would result in 6,000 shares of stock and $120,000 in debt. The interest rate on the debt is 6 percent. Assume that EBIT will be $50,000. An all-equity plan would result in 12,000 shares of stock outstanding. Ignore taxes.
What is the price per share of equity under Plan I? Plan II? (Round your answers to 2 decimal places. (e.g., 32.16))
estin Corp. is comparing two different capital structures. Plan I would result in 8,000 shares of stock and $80,000 in debt. Plan II would result in 6,000 shares of stock and $120,000 in debt. The interest rate on the debt is 6 percent. Assume that EBIT will be $50,000. An all-equity plan would result in 12,000 shares of stock outstanding. Ignore taxes.
Explanation / Answer
plan 1 = price pershare of equity =8.25 per share
plan 2 =price pershare of equity =8.33 per share
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