Kyle Corporation is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, Kyle would have 400,000 shares of stock outstanding. Under Plan II, there would be 260,000 shares of stock outstanding and $6,020,000 in debt outstanding. The interest rate on the debt is 10 percent, and there are no taxes.
1. Use M&M Proposition I to find the price per share of equity.
2. What is the value of the firm under Plan I?
3. What is the value of the firm under Plan II?
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