Question

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 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $1.92 million in debt outstanding. The interest rate on the debt is 7 percent and there are no taxes.

Use MM 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.)

Share price           $  per share

What is the value of the firm under each of the two proposed plans? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g., 1,234,567.)  

  

All equity plan	$________
Levered plan	$________

Answer 1

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