Cooke Co. is comparing two different capital structures. Plan I would result in
ID: 2730086 • Letter: C
Question
Cooke Co. is comparing two different capital structures. Plan I would result in 9,500 shares of stock and $389,500 in debt. Plan II would result in 12,160 shares of stock and $280,440 in debt. The interest rate on the debt is 10 percent. The all-equity plan would result in 19,000 shares of stock outstanding. Ignore taxes for this problem.
What is the price per share of equity under Plan I?
What is the price per share of equity under Plan II?
Cooke Co. is comparing two different capital structures. Plan I would result in 9,500 shares of stock and $389,500 in debt. Plan II would result in 12,160 shares of stock and $280,440 in debt. The interest rate on the debt is 10 percent. The all-equity plan would result in 19,000 shares of stock outstanding. Ignore taxes for this problem.
Explanation / Answer
Answer:(a) Assuming that EBIT will be $53,800
Price per share=$1.56
Answer:(b) Price per share=$2.12
Particulars Plan I Plan II EBIT 53800 53800 Less: interest 38950 28044 EAT 14850 25756 No of shares outstanding 9500 12160 EPS 1.56 2.12