What is the value of the firm under plan i

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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.

a. What is the value of the firm under Plan I?

b. Will the price per share of equity be different under Plan II? Show calculations.

Reference no: EM133120959

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