Problem 16-5 M and M and Stock Value [LO1] Foundation, Incorporated, is comparing two different capital structures: an a

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Problem 16 5 M And M And Stock Value Lo1 Foundation Incorporated Is Comparing Two Different Capital Structures An A 1 (38.68 KiB) Viewed 31 times

Problem 16-5 M and M and Stock Value [LO1] Foundation, Incorporated, 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 185,000 shares of stock outstanding. Under Plan II, there would be 135,000 shares of stock outstanding and $1.92 million in debt outstanding. The interest rate on the debt is 7 percent and there are no taxes. a. Use M&M Proposition I to find the price per share. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the firm under each of the two proposed plans? (Do not round intermediate calculations and round your answers to the nearest whole dollar amount, e.g., 32.) a. Share price b. All-equity firm value b. Levered plan firm value