Ask Question
BusinessBusiness
22 October, 04:54

DAR 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 160,000 shares of stock outstanding. Under Plan II, there would be 110,000 shares of stock outstanding and $1.41 million in debt outstanding. The interest rate on the debt is 7 percent and there are no taxes. 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.) Share price $ per share 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.)

+4
Answers (1)
  1. 22 October, 07:27
    0
    a) Share price of company is $28.20.

    b) So value of unlevered firm is $4.512 million.

    Explanation:

    a.

    Share price = Value of debt / (160,000 - 110,000)

    = $1,410,000 / 50,000

    = $28.20

    Share price of company is $28.20.

    b.

    VAlue of all equity firm = Number of share outstanding * Price per share

    = 160,000 * $28.20

    = $4.512 million

    Value of levered firm is $4.512 million.

    Since tax rate is zero, so value of levered firm equal to value of unlevered firm.

    So value of unlevered firm is $4.512 million.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “DAR Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
Interest will usually begin to accrue immediately when you use a bank credit card to:
Answers (1)
How does inflation impact my financial wealth
Answers (1)
Assume the price elasticity of demand for MC Pretzel Co. pretzels is 0.8. If the company increases the price of each bag of pretzels, total revenue will A) Decrease because fewer bags will be sold.
Answers (1)
Which of the following refers to the location of the primary office? A. Home base B. Foreign base C. IHR office D. International Labor Organization
Answers (1)
A broker took earnest money from a buyer. He deposited the money in the trust account, but when his electric bill was due, the broker deposited the buyer's money into the broker's business account. What is this action called?
Answers (1)
New Questions in Business
Firm P, a noncorporate taxpayer, purchased residential realty in 1985 for $1 million. This year it sold the realty for $450,000. Through date of sale, Firm P deducted $814,000 accelerated depreciation on the realty.
Answers (1)
The checking account of a small healthcare business pays interest each day the balance in the account exceeds $1,000. The bank credits the account with the accumulated interest at the end of each month. How should the interest income be posted?
Answers (1)
A house wife invest RS 5000 at 5.5% her husband wishes to invest enough money to have 8% interest so that their total interest will amount to RS 1000 in a year the amount invested by husband is
Answers (1)
Is its revenue stream from advertising and equipment sales growing or declining
Answers (1)
Obligations issued in the name of a government on behalf of a nongovernmental entity is called
Answers (1)
Home » Business » DAR 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 160,000 shares of stock outstanding.
Sign Up Forgot Password?