Question

Gulf Shores Inn is comparing two separate capital structures. The first structure consists of 64,000 shares of stock and no debt. The second structure consists of 50,000 shares of stock and $1.01 million of debt. What is the price per share of equity

Answer 1

Answer: $72.14

Explanation:

To find the price per share of equity, equate the value of capital for both structures to find it.

Assume that the price per share of equity = s

Value under structure A = Value under structure B

64,000 * s = (50,000 * s) + 1,01 million

64,000s - 50,000s = 1,010,000

14,000s = 1,010,000

s = 1,010,000/14,000

s = $72.14