Suppose that Lil John Industries equity is currently selling for $27 per share and that there are

Question:

Suppose that Lil John Industries’ equity is currently selling for $27 per share and that there are 2 million shares outstanding. The firm also has 50 thousand bonds outstanding, which are selling at 103 percent of par. If Lil John was considering an active change to their so that the firm would have a D/E of 1.4, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...