Answer:
The price per share using MM Proposition I is $38,40
The value of the firm under each of the two proposed plans is $7,104,000
Explanation:
In order to calculate the price per share using MM Proposition I we would have to use the following formula:
share price=Debt/Difference in number of shares
share price=1,920,000/(185,000-135,000)
share price=$38,40
The price per share using MM Proposition I is $38,40
In order to calcuate the value of the firm under each of the two proposed plans we would have to calculate the following formulas:
All equity plan=share price×number of shares
All equity plan=185,000×$38,40
All equity plan=$7,104,000
Levered plan=share price×number of shares+debt
Levered plan=115,000×$20.59+$175,000
Levered plan=$7,104,000
The value of the firm under each of the two proposed plans is $7,104,000
