Franklin Corporation is comparing two different capital
structures, an all-equity plan (Plan I) and a levered plan (Plan
II). Under Plan I, the company would have 205,000 shares of stock
outstanding. Under Plan II, there would be 155,000 shares of stock
outstanding and $2.17 million in debt outstanding. The interest
rate on the debt is 6 percent and there are no taxes. Use
1)
|
Use MM Proposition I to find the price per |
| Share price | $ |
2)
|
What is the value of the firm under each of the two proposed |
| All equity plan | $ |
| Levered plan | $ |
