Suppose that Lil John Industries equity is currently selling for $42 per share and that 3.5 million shares are outstanding. The firm also has 65,000 bonds outstanding, which are selling at 103 percent of par. Assume Lil John was considering an active change to its capital structure so that the firm would have a (D/E) of 1.4.

Which type of security (stocks or bonds) would it need to sell to accomplish this?

	Sell bonds and buy back stock
	Sell stock and buy back bonds

How much would the firm have to sell?