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You currently own 800 shares of JKL, Inc. JKL is currently an all equity that has 900,000 shares of stock outstanding at a market price
You currently own 800 shares of JKL, Inc. JKL is currently an all equity that has 900,000 shares of stock outstanding at a market price of $20 a share. The company's earnings before interest and taxes are $3,600,000. JKL recently decided to issue $9,000,000 of debt at 6 percent interest. This debt will be used to repurchase shares of stock. Ignore taxes and answer the following two questions: Part A : What is JKL's target debt to asset ratio? % Part B: How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds at 6 percent interest. You currently own 800 shares of JKL, Inc. JKL is currently an all equity that has 900,000 shares of stock outstanding at a market price of $20 a share. The company's earnings before interest and taxes are $3,600,000. JKL recently decided to issue $9,000,000 of debt at 6 percent interest. This debt will be used to repurchase shares of stock. Ignore taxes and answer the following two questions: Part A : What is JKL's target debt to asset ratio? % Part B: How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds at 6 percent interest
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