Kolby Corp. is comparing two different capital structures. Plan I would result in 15,000 shares of...

Kolby Corp. is comparing two different capital structures. Plan I would result in 15,000 shares of stock and $100,000 in debt. Plan II would result in 11,500 shares of stock and $170,000 in debt. The interest rate on the debt is 5 percent. Assume that EBIT will be $70,000. An all-equity plan would result in 20,000 shares of stock outstanding. Ignore taxes. What is the price per share of equity under Plan I? Plan II?

Solutions

Expert Solution

Price per share of equity under Plan I

The Price per share = The value of shares repurchased / The number of shares repurchased

The value of shares repurchased = Debt in Plan II – Debt in Plan I

= $170,000 - $100,000

= $70,000

The Number of shares repurchased = The number of stocks in Plan I – The number of stocks in Plan II

= $15,000 Shares – 11,500 Shares

= 3,500 Shares

Therefore, the Price per share = The value of shares repurchased / The number of shares repurchased

= $70,000 / 3,500 Shares

= $20.00 per share

Price per share of equity under Plan II

The Number of shares repurchased = The number of stocks outstanding in all-equity plan - The number of stocks in Plan II

= 20,000 Shares – 11,500 Shares

= 8,500 Shares

The Price per share = Debt in Plan II / Shares repurchased

= $170,000 / 8,500 Shares

= $20.00 per share

“The price per share of equity under Plan I = $20.00 per share”

“The price per share of equity under Plan II = $20.00 per share”

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Kolby Corp. is comparing two different capital structures. Plan I would result in 32,000 shares of...

Kolby Corp. is comparing two different capital structures. Plan I would result in 32,000 shares of stock and $94,500 in debt. Plan II would result in 26,000 shares of stock and $283,500 in debt. The interest rate on the debt is 4 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $125,000. The all-equity plan would result in 35,000 shares of stock outstanding. What is the EPS for each of...

Kolby Corp. is comparing two different capital structures. Plan I would result in 24,000 shares of...

Kolby 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. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $85,000. The all-equity plan would result in 27,000 shares of stock outstanding. What is the EPS for each of...

Kolby Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of...

Kolby Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of stock and $100,000 in debt. Plan II would result in 7,200 shares of stock and $160,000 in debt. The interest rate on the debt is 10 percent. Assume that EBIT will be $90,000. An all-equity plan would result in 20,000 shares of stock outstanding. Ignore taxes. What is the price per share of equity under Plan I? Plan II?

Kolby Corp. is comparing two different capital structures. Plan I would result in 35,000 shares of...

Kolby Corp. is comparing two different capital structures. Plan I would result in 35,000 shares of stock and $100,500 in debt. Plan II would result in 29,000 shares of stock and $301,500 in debt. The interest rate on the debt is 7 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $140,000. The all-equity plan would result in 38,000 shares of stock outstanding. What is the EPS for each of...

Kolby corporation is comparing two different capital structures, Plan I, would result in 1,300 shares of...

Kolby corporation is comparing two different capital structures, Plan I, would result in 1,300 shares of stock and $80,640 in debt. Plan II would result in 2,900 shares of stock and $19,200 in debt. The interest rate on the debt is 10%. a. Ignoring taxes, compare both of these plans to an equity plan assuming that EBIT will $10,500. The all equity plan would result in 3,400 shares of stock outstanding. Which of the three plans has the highest EPS?...

Coldstream Corp. is comparing two different capital structures. Plan I would result in 16,000 shares of...

Coldstream Corp. is comparing two different capital structures. Plan I would result in 16,000 shares of stock and $100,000 in debt. Plan II would result in 12,000 shares of stock and $200,000 in debt. The interest rate on the debt is 6 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $80,000. The all-equity plan would result in 20,000 shares of stock outstanding. What is the EPS for each of these...

Haskell Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of...

Haskell Corp. is comparing two different capital structures. Plan I would result in 12,000 shares of stock and $100,000 in debt. Plan II would result in 4,000 shares of stock and $200,000 in debt. The interest rate on the debt is 8 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $70,000. The all-equity plan would result in 20,000 shares of stock outstanding. What is the EPS for each of these...

Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of...

Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $90,000 in debt. Plan II would result in 7,600 shares of stock and $198,000 in debt. The interest rate on the debt is 10 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $48,000. The all-equity plan would result in 12,000 shares of stock outstanding. What is the EPS for each of...

Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of...

Destin Corp. is comparing two different capital structures. Plan I would result in 10,000 shares of stock and $100,000 in debt. Plan II would result in 5,000 shares of stock and $200,000 in debt. The interest rate on the debt is 6 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $60,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of...

Bellwood Corp. is comparing two different capital structures. Plan I would result in 12,700 shares of...

Bellwood Corp. is comparing two different capital structures. Plan I would result in 12,700 shares of stock and $109,250 in debt. Plan II would result in 9,800 shares of stock and $247,000 in debt. The interest rate on the debt is 10 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $79,000. The all-equity plan would result in 15,000 shares of stock outstanding. What is the EPS for each of...

Subjects