Gulf Shores Inn Is Comparing Two Separate Capital Structures

question 8

Multiple Choice

Gulf Shores Inn is comparing two separate capital structures.The first structure consists of 260,000 shares of stock and no debt.The second structure consists of 200,000 shares of stock and $1.5 million of debt.What is the price per share of equity?

• A)$18
• B)$21
• C)$25
• D)$30
• E)$33

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Definitions:

Gross Margin

The difference between sales revenue and cost of goods sold, expressed as a percentage of sales revenue, indicating the financial health and profitability of a business.

Absorption Costing

An approach to costing that encompasses all costs associated with manufacturing, including direct materials, direct labor, as well as variable and fixed manufacturing overheads, in the product cost.

Absorption Costing

A strategy in accounting practice that aggregates all manufacturing expenses, from direct materials and labor to variable and fixed overheads, into the determination of a product's cost.

Break-Even Sales

The amount of revenue required to cover both the variable and fixed costs of a business, indicating no profit and no loss.