Question
Miller's Dry Goods is an all equity firm with 50,000 shares of stock outstanding at a market price of $60 a share. Miller's has decided
Miller's Dry Goods is an all equity firm with 50,000 shares of stock outstanding at a market price of $60 a share. Miller's has decided to add leverage to its financial operations by issuing $300,000 of debt at 8 percent interest. The debt will be used to repurchase shares of stock. You own 400 shares of Miller's stock. You also loan out funds at 8 percent interest. How many shares of Miller's stock must you sell to offset the leverage that Miller's is assuming? Assume you loan out all of the funds you receive from the sale of stock. Ignore taxes.
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