Question: Foundation, Inc. is comparing two different capital structure plans. Plan 1: The firm will have no debt and be entirely equity-financed. The company would issue

Foundation, Inc. is comparing two different capital structure plans. Plan 1: The firm will have no debt and be entirely equity-financed. The company would issue 145,000 shares of stock. Plan 2: The firm would borrow $716,000 at an interest rate of 8% and use the proceeds to repurchase 20,000 shares of stock. There are no taxes in this case.

a. What is the per share price of the stock?

b. What is the value of the firm under capital structure plan 1?

c. What is the value of the firm under capital structure plan 2?

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