Question
Clover Fields is an all equity firm with 55,000 shares of stock outstanding at a market price of $17.50 a share. The company has
Clover Fields is an all equity firm with 55,000 shares of stock outstanding at a market price of $17.50 a share. The company has earnings before interest and taxes of $115,500. Clover Fields decides to issue $350,000 of debt at an 8% rate of interest. The debt will be used to repurchase shares of the outstanding stock. Currently, you own 800 shares of Clover Fields stock. How many shares of this stock must you sell to unlever your position if you can lend out funds at an 8% rate of interest?
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Equity Asset Valuation
Authors: Jerald E. Pinto, Elaine Henry, Thomas R. Robinson, John D. Stowe, Abby Cohen
2nd Edition
470571439, 470571438, 9781118364123 , 978-0470571439
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