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You have successfully unlocked this question. You currently own 1100 shares of JKL, Inc. JKL is an all equity that has 200000 shares of stock
- You have successfully unlocked this question.
You currently own 1100 shares of JKL, Inc. JKL is an all equity that has 200000 shares of stock outstanding at a market price of $10 a share. The company's earnings before interest and taxes are $400,000. JKL has decided to issue $1,000,000 million of debt at 10 percent interest. This debt will be used to repurchase shares of stock. Ignore taxes and answer the following two questions:
A) What is the target debt to asset ratio?
B) How many shares of JKL stock must you sell to undo the leverage if you can loan out funds at 10% interest?
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Managerial Accounting
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
13th Edition
978-0073379616, 73379611, 978-0697789938
