Question: ABC PTY LTD is comparing two different capital structures. Plan I would result in 12700 shares and $109250 in debt. Plan II would result in

ABC PTY LTD is comparing two different capital structures. Plan I would result in 12700 shares and $109250 in debt. Plan II would result in 9800 shares and $247000 in debt. The interest rate on the debt is 10 per cent.

a. Ignoring taxes, when will EPS be identical for Plans I and II?

b. Ignoring taxes, what is the price per share of equity under Plan I? Plan II? What principle is illustrated by your answers?

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