In problem 16.4, use MM Proposition I to find the price per share of equity under each
Question:
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.
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We can find the price per share by dividing the amount of debt used to repurchas...View the full answer
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Related Book For 
Corporate Finance
ISBN: 978-0071339575
7th Canadian Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Ro
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