Cooke Co. is comparing two different capital structures. Plan I would result in

Question

Cooke Co. is comparing two different capital structures. Plan I would result in 8,700 shares of stock and $399,000 in debt. Plan II would result in 12,500 shares of stock and $239,400 in debt. The interest rate on the debt is 11 percent. The all-equity plan would result in 18,200 shares of stock outstanding. Ignore taxes for this problem.

1. what is the price per share of equity under Plan I?'

2. what is the price per share of equity under Plan II

Cooke Co. is comparing two different capital structures. Plan I would result in 8,700 shares of stock and $399,000 in debt. Plan II would result in 12,500 shares of stock and $239,400 in debt. The interest rate on the debt is 11 percent. The all-equity plan would result in 18,200 shares of stock outstanding. Ignore taxes for this problem.

Explanation / Answer

what is the price per share of equity under Plan =399000/(18200-8700)=42

what is the price per share of equity under Plan II=239400/(18200-12500)=42

what is the price per share of equity under Plan II=239400/(18200-12500)=42

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