Explanation:
A). The computation of price per share is shown below:-
Debt outstanding ÷ (Stock outstanding of Plan 1 - Stock outstanding of
Plan 2)
= $1,730,000 ÷ (205,000 - 125,000)
= $21.63 per share
B a.) Under equity plan the value is
= Debt outstanding × Stock outstanding of Plan 1
= $21.63 × 205,000 shares
= $4,433,125
B b.) under the levered plan the value is
Price per share × Stock outstanding of Plan 2 + Debt outstanding
= $21.63 × 125,000 shares + $1,730,000
= $2,703,125 + $1,730,000
= $4,433,125
