Question

In: Finance

Byrd Corp is comparing two different capital structures, and all equity plan (Plan I) and a...

Byrd Corp is comparing two different capital structures, and all equity plan (Plan I) and a levered plan(Plan II). Under Plan I, the company would have 175,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and 2.23 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes.

a. USE MM Proposition I to find price per share.

b, What is the value of the firm under each of the two proposed plans?

a Share Price

a	Share Price
b	All Equity Plan
	Levered Plan

b All Equity Plan Levered Plan

Solutions

Expert Solution

Solution:- Given in Question-

Outstanding shares (Under Plan I) = 1,75,000 shares

Outstanding shares (Under Plan II) = 1,25,000 shares

Debt Outstanding (Under Plan II) = $2.23 Million

To Calculate Price per share using M&M Proposition-

Price Per share =

Price Per share = $44.60

To Calculate Value of the firm under each of the two proposed plans -

Part A

Share Price = $44.60

Number of shares outstanding = 1,75,000 shares

Value of Firm = Share Price * Number of shares outstanding

Value of Firm = $44.60 * 1,75,000 share

Value of Firm = $7.805 Million

Part B

Share Price = $44.60

Number of shares outstanding = 1,25,000 shares

Debt Outstanding = $2.23 Million

Value of Firm = Share Price * Number of shares outstanding + Debt Outstanding

Value of Firm = $44.60 * 1,25,000 share + $2.23 Million

Value of Firm = $7.805 Million

If you have any query related to question then feel free to ask me in a comment. Thanks. Please rate.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Byrd Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered...

Byrd Corporation 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 205,000 shares of stock outstanding. Under Plan II, there would be 155,000 shares of stock outstanding and $3.1 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes. a. If EBIT is $600,000, what is the EPS for each plan? (Do not round intermediate calculations...

Byrd Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered...

Byrd Corporation 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 MM Proposition I to find the price per share. (Do not round intermediate calculations and...

Robert is comparing two different capital structures: An all-equity plan (Plan I) and a levered plan...

Robert 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 205,000 shares of stock outstanding. Under Plan II, there would be 155,000 shares of stock outstanding and $3.1 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. a.If EBIT is $600,000, what is the EPS for each plan? (Do not round intermediate calculations and round your...

James Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered...

James Corporation 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 160,000 shares of stock outstanding. Under Plan II, there would be 80,000 shares of stock outstanding and $2.8 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes. Required: (a) If EBIT is $350,000, Plan I's EPS is $ while Plan II's EPS is $ . (Do not...

Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered...

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 175,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $1.7 million in debt outstanding. The interest rate on the debt is 5 percent, and there are no taxes. a. If EBIT is $325,000, what is the EPS for each plan? (Do not round intermediate calculations...

Square Block Company is comparing two different capital structures: An all-equity plan (Plan I) and a...

Square Block Company 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 350,000 shares of stock outstanding. Under Plan II, there would be 225,000 shares of stock outstanding and $5 million in debt outstanding. The interest rate on the debt is 10 percent, and there are no taxes. a. If EBIT is $1,000,000, which plan will result in the higher EPS? b....

Round Hammer is comparing two different capital structures: An all-equity plan (Plan I) and a levered...

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 180,000 shares of stock outstanding. Under Plan II, there would be 130,000 shares of stock outstanding and $1.925 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...

Yasmin Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered...

Yasmin Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Yasmin would have 180,000 shares of stock outstanding. Under Plan II, there would be 130,000 shares of stock outstanding and $1.8 million in debt outstanding. The interest rate on the debt is 6 percent and there are no taxes. a. If EBIT is $225,000, what is the EPS for each plan? (Do not round intermediate calculations and round...

Hale Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered...

Hale Corporation 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 175,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock outstanding and $2.5 million in debt outstanding. The interest rate on the debt is 8 percent and there are no taxes. a. If EBIT is $650,000, what is the EPS for each plan? (Do not round intermediate calculations and...

Rolston Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered...

Rolston Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Rolston would have 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $2.70 million in debt outstanding. The interest rate on the debt is 5 percent and there are no taxes. a. If EBIT is $375,000, what is the EPS for each plan? (Do not round intermediate calculations and...

Subjects