Would Kmart's management serve the interests of its shareholders best by obtaining 50% debt and purchasing some of its common stock at the January 1986 market price of $25?

On the basis of return and risk, how does increased leverage affect a company and the individual shareholder?

Pro-forma
	Actual	30%	50%	70%
sales	876.4	876.4	876.4	876.4
earning before interest and taxes	64	64	64	64
interest	0	4.8	8.1	11.3
earning before taxes	64	59.2	55.9	52.7
Taxes	31.4	29.6	28	26.4
Net Earning	32.6	29.6	27.9	26.4
Dividends	8.9	8.3	7.8	7.4
Shares outstanding	16.15	14.6	13.57	12.53
Earning Shares	2.02	2.03	2.06	2.1
Price/earning ratio	12.38
dividends/Share	0.55	0.57	0.58	0.59
Dividends Yield	2.2
Beginnning of Year
Debt	0	38.7	64.5	90.4
Net Worth	129.1	90.4	64.6	38.7
Stock Price	25