Problem 16-7 Leverage and Stock Value [LO1]

Bellwood Corp. is comparing two different capital structures. Plan I would result in 24,000 shares of stock and $82,500 in debt. Plan II would result in 18,000 shares of stock and $247,500 in debt. The interest rate on the debt is 4 percent. Assume that EBIT will be $85,000. An all-equity plan would result in 27,000 shares of stock outstanding. Ignore taxes.

What is the price per share of equity under Plan I? Plan II? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

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Problem 16-11 M and M and Taxes [LO2]

Thrice Corp. uses no debt. The weighted average cost of capital is 8.9 percent. The current market value of the equity is $17.5 million and the corporate tax rate is 25 percent.

What is EBIT? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)