Question

Gulf Shores Inn is comparing two separate capital structures. The first structure consists of 355,000 shares of stock and no debt. The second structure consists of 318,000 shares of stock and $2.22 million of debt. What is the price per share of equity?

$68.57

$73.85

$62.86

$60.00

$77.54

Answer 1

Assume price per share of equity = x
No. of shares in capital structure 1 =			355000
Debt amount =			0
No. of shares in capital structure 2 =			318000
Debt amount =			2220000
Compare both strucutre
355000 * x = (318000 * x) + 2220000
37000x = 2220000
x =	60
So, price per share is $ 60.
Formula is derived = Amount of debt / (Difference in no. of shares)