Destin Corp. is comparing two different capital structures. Plan I would result
ID: 2742136 • Letter: D
Question
Destin Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $60,000 in debt. Plan II would result in 5,000 shares of stock and $140,000 in debt. The interest rate on the debt is 10 percent. Assume that EBIT will be $60,000. An all-equity plan would result in 12,000 shares of stock outstanding. Ignore taxes.
What is the price per share of equity under Plan I? Plan II? (Round your answers to 2 decimal places. (e.g., 32.16))
What is the price per share of equity under Plan I? Plan II? (Round your answers to 2 decimal places. (e.g., 32.16))
Explanation / Answer
Plan I
Plan II
Debt
60,000
140,000
Intrest@10%
6,000
14,000
Plan I
Plan II
EBIT
60,000
60,000
Less Interest@ 10%
6,000
14,000
A
Profit after tax
54,000
46,000
B
No of shares outstanding
9,000
5,000
C=A/B
Earnings per share
6
9.2
Plan I
Plan II
Debt
60,000
140,000
Intrest@10%
6,000
14,000
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