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Naylor's is an all equity firm with 60,000 shares of stock outstanding at a market price of $50 a share. The company has earnings before
Naylor's is an all equity firm with 60,000 shares of stock outstanding at a market price of $50 a share. The company has earnings before interest and taxes of $87,000. Naylor's has decided to issue $750,000 of debt at 7.5 percent. The debt will be used to repurchase shares of the outstanding stock. Currently, you own 500 shares of Naylor's stock. Assume you can borrow or loan out funds at 7.5 percent interest. Ignore taxes How many shares of Naylor's stock will you sell if you prefer the all-equity capital structure and want to (home) unlever your holdings? 0 shares 100 shares 125 shares 150 shares 300 shares
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