Question: Foundation, Incorporated, is comparing two different capital structures, an all - equity plan ( Plan I ) and a levered plan ( Plan II )

Foundation, Incorporated, is comparing two different capital structures, an all-equity plan (Plan I) and a levered plan (Plan II). Under
Plan I, the company would have 175,000 shares of stock outstanding. Under Plan II, there would be 125,000 shares of stock
outstanding and $2.23 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
a. Use M&M Proposition I to find the price per share.
Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g.,32.16.
b. What is the value of the firm under each of the two proposed plans?
Note: Do not round intermediate calculations and round your answers to the nearest whole number, e.g.,32.
a. Share price
b. All-equity firm value
Levered plan firm value
Foundation, Incorporated, is comparing two different capital structures, an all-equity plan

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