Bellwood Corp. is comparing two different capital structures. Plan I would resul

Question

Bellwood Corp. is comparing two different capital structures. Plan I would result in 33,000 shares of stock and $96,000 in debt. Plan II would result in 27,000 shares of stock and $288,000 in debt. The interest rate on the debt is 5 percent. Assume that EBIT will be $130,000. An all-equity plan would result in 36,000 shares of stock outstanding. Ignore taxes. What is the price per share of equity under Plan I? Plan I? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Plan l Plan II

Explanation / Answer

Value of debt under Plan II $288,000 Value of debt under Plan I $96,000 Debt Repurchase $192,000 Number of shares under Plan II 27000 Number of shares under Plan I 33000 Shares repurchase 6000 Therefore, value of shares under Plan I is Price of Shares = $192000/6000 $32 per share Price of Shares under Plan I is Shares repurchased = 36000-27000 9000 Price of shares = $288000/9000 $32 per share Plan I $32 Plan II $32

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