Question

Silverton Co. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $306,000 in debt. Plan II would result in 12,150 shares of stock and $198,900 in debt. The interest rate on the debt is 10 percent. The all-equity plan would result in 18,000 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            $

Answer 1

(a)-The price per share of equity under Plan I

Value of Debt = $306,000

Number of shares repurchased = 9,000 Shares [18,000 Shares – 9,000 Shares]

Therefore, the price per share of equity under Plan I = Value of Debt / Number of shares repurchased

= $306,000 / 9,000 Shares

= $34.00

(b)-The price per share of equity under Plan II

Value of Debt = $198,900

Number of shares repurchased = 5,850 Shares [18,000 Shares – 12,150 Shares]

Therefore, the price per share of equity under Plan II = Value of Debt / Number of shares repurchased

= $198,900 / 5,850 Shares

= $34.00