Kolby Corp. is comparing two different capital structures. Plan I would result in 900 shares of stock and $65,700 in debt. Plan II would result in 1,900 shares of stock and $29,200 in debt. The interest rate on the debt is 10 percent. Assume that EBIT will be $8,500. An all-equity plan would result in 2,700 shares of stock outstanding. Ignore taxes. What is the price per share of equity under Plan I? Plan II?

Financial Accounting
15th Edition
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter14: Long-term Liabilities: Bonds And Notes
Section: Chapter Questions
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Kolby Corp. is comparing two different capital
structures. Plan I would result in 900 shares of stock
and $65,700 in debt. Plan II would result in 1,900
shares of stock and $29,200 in debt. The interest rate
on the debt is 10 percent. Assume that EBIT will be
$8,500. An all-equity plan would result in 2,700
shares of stock outstanding. Ignore taxes. What is the
price per share of equity under Plan I? Plan II?
Transcribed Image Text:Kolby Corp. is comparing two different capital structures. Plan I would result in 900 shares of stock and $65,700 in debt. Plan II would result in 1,900 shares of stock and $29,200 in debt. The interest rate on the debt is 10 percent. Assume that EBIT will be $8,500. An all-equity plan would result in 2,700 shares of stock outstanding. Ignore taxes. What is the price per share of equity under Plan I? Plan II?
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