Lennon & McCartney Co is comparing two different capital structures: An all equity plan (Plan 1) and a levered plan (Plan 2). Under Plan 1, the company would have 200,000 shares of stock outstanding. Under Plan 2, there would be 130,000 shares of stock outstanding and $2.925 million in debt outstanding. The interest rate on the debt is 8%, and there are no taxes. What is the current share price? O a. $38.50 O b. $41.8 O c. $53.89 O d. $27.5 QUESTION 9 Using the information in (8), what is the ratio of the value of the firms comparing Plan 1 to Plan 2? O a. 1
Lennon & McCartney Co is comparing two different capital structures: An all equity plan (Plan 1) and a levered plan (Plan 2). Under Plan 1, the company would have 200,000 shares of stock outstanding. Under Plan 2, there would be 130,000 shares of stock outstanding and $2.925 million in debt outstanding. The interest rate on the debt is 8%, and there are no taxes. What is the current share price? O a. $38.50 O b. $41.8 O c. $53.89 O d. $27.5 QUESTION 9 Using the information in (8), what is the ratio of the value of the firms comparing Plan 1 to Plan 2? O a. 1
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:QUESTION 8
Lennon & McCartney Co is comparing two different capital structures: An all equity plan (Plan 1) and a levered plan (Plan 2).
Under Plan 1, the company would have 200,000 shares of stock outstanding. Under Plan 2, there would be 130,000 shares of
stock outstanding and $2.925 million in debt outstanding. The interest rate on the debt is 8%, and there are no taxes. What is
the current share price?
a. $38.50
O b. $41.8
c. $53.89
O d. $27.5
QUESTION 9
Using the information in (8), what is the ratio of the value of the firms comparing Plan 1 to Plan 2?
O a. 1
O b. 1.1
О с. 1.08
O d.2.1
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