Question
Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would
| Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 195,000 shares of stock outstanding. Under Plan II, there would be 145,000 shares of stock outstanding and $2.13 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes. |
| a. | Use M&M Proposition I to find the price per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | What is the value of the firm under each of the two proposed plans? (Do not round intermediate calculations and round your answers to the nearest whole dollar amount, e.g., 32.) |
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Managerial Accounting Tools for business decision making
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
5th edition
470506954, 471345881, 978-0470506950, 9780471345886, 978-0470477144
