Silverton Co. is comparing two different capital structures.
Plan I would result in 8,700 shares of stock and $323,000 in debt.
Plan II would result in 12,000 shares of stock and $210,800 in
debt. The interest rate on the debt is 10 percent. The all-equity
plan would result in 18,200 shares of stock outstanding. Ignore
taxes for this problem.
What is the price per share of equity under Plan I? (Do not
round intermediate calculations and round your answer to the
nearest whole number, e.g., 32.)
Price per share
$
What is the price per share of equity under Plan II? (Do
not round intermediate calculations and round your answer to the
nearest whole number, e.g., 32.)
Price per share
$
(a)-The price per share of equity under Plan I
Value of Debt = $323,000
Number of shares repurchased = 9,500 Shares [18,200 Shares – 8,700 Shares]
Therefore, the price per share of equity under Plan I = Value of Debt / Number of shares repurchased
= $323,000 / 9,500 Shares
= $34.00
(b)-The price per share of equity under Plan II
Value of Debt = $210,800
Number of shares repurchased = 6,200 Shares [18,200 Shares – 12,000 Shares]
Therefore, the price per share of equity under Plan II = Value of Debt / Number of shares repurchased
= $210,800 / 6,200 Shares
= $34.00
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