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You currently own 700 shares of JKL, Inc. JKL is an all equity that has 300,000 shares of stock outstanding at a market price
You currently own 700 shares of JKL, Inc. JKL is an all equity that has 300,000 shares of stock outstanding at a market price of $35 a share. The company's earnings before interest and taxes are $2,100,000. You believe that the JKL should finance 33.33 percent of assets with debt, but management refuses to leverage the company. Given that similar firms' pay 9 percent interest on their debt, answer the following questions. Part A: How much money should you borrow to create the leverage on your own? Assume you can borrow funds at 9 percent interest. $ Part B. How many additional shares of JKL stock must you purchase (using the borrowed funds in Part A) to create the leverage on your own?
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