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Cowen Company has EBIT of 600,000, company's Debt-to-equity ratio (market value) is 0.6, and the market value of debt is 2,000,000. Assume there is no tax and you can borrow at the cost of the company's cost of debt, you own 1000 shares of Cowen's stock. How many shares of Cowen's stock will you continue to own by borrowing if you try to make this position unlevered?

Cowen Company has EBIT of 600,000, company's Debt-to-equity ratio (market value) is 0.6, and the market value of debt is 2,000,000. Assume there is no tax and you can borrow at the cost of the company's cost of debt, you own 1000 shares of Cowen's stock. How many shares of Cowen's stock will you continue to own by borrowing if you try to make this position unlevered?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Cowen Company has EBIT of 600,000, company's Debt-to-equity ratio (market value) is 0.6, and the market value of debt is 2,000,000. Assume there is no tax and you can borrow at the cost of the company's cost of debt, you own 1000 shares of Cowen's stock. How many shares of Cowen's stock will you continue to own by borrowing if you try to make this position unlevered?
Transcribed Image Text:Cowen Company has EBIT of 600,000, company's Debt-to-equity ratio (market value) is 0.6, and the market value of debt is 2,000,000. Assume there is no tax and you can borrow at the cost of the company's cost of debt, you own 1000 shares of Cowen's stock. How many shares of Cowen's stock will you continue to own by borrowing if you try to make this position unlevered?
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