Question

ICN Inc is considering two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 89, 000 shares of stock outstanding. Under Plan II, there would be 55, 000 shares of stock outstanding and $1,134,500 in debt outstanding. The interest rate on the debt is 10%, and there are no taxes. What is the price per share of equity

Answer 1

the price per share of equity is $33.37 per share

Step-by-step explanation:

The computation of the price per share of equity is shown below:

Price per share = Value of debt ÷ (Shares outstanding under Plan I - Shares outstanding under Plan II)

= $1,134,500 ÷ (89,000 - 55,000)

= $1,134,500 ÷ 34,000 shares

= $33.37 per share

Hence, the price per share of equity is $33.37 per share

therefore we simply applied the above formula so that the correct per share price could come