In problem 16.4, use MM Proposition I to find the price per share of equity under each of the two proposed plans. What is the value of the firm?
In Problem 16.4
Rolston Corp. is comparing two different capital structures, an all-equity plan (plan I) and a levered plan (plan II). Under plan I, Rolston would have 265,000 shares of stock outstanding. Under plan II, there would be 185,000 shares of stock outstanding and $2.8 million in debt outstanding. The interest rate on the debt is 10 percent and there are no taxes.