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XYZ Corp., is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, XYZ would have
XYZ Corp., is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, XYZ would have 100,000 shares of stock outstanding. Under Plan II, there would be 50,000 shares of stock outstanding and $1.5 million in debt outstanding. The interest rate on the debt is 10% and there are no taxes.
what is the price per share of equity under each of the two proposed plans. What is the value of the firm, under each capital structure? (Ans. Price=$30, Vu=3m, Vl=3m)
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