Question #1   You currently own 600 shares of JKL, Inc. JKL is an all-equity firm that has 75,000 shares of stock outstanding at a market price of $40 a share. The company’s earnings before interest and taxes are $140,000. JKL has decided to issue $1 million of debt at 8 percent interest. This debt will be used to repurchase shares of stock. How many shares of JKL stock must you sell to unlever your position if you can loan out funds at 8 percent interest?

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
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Question #1  
You currently own 600 shares of JKL, Inc. JKL is an all-equity firm
that has 75,000 shares of stock outstanding at a market price of $40
a share. The company’s earnings before interest and taxes are $140,000.
JKL has decided to issue $1 million of debt at 8 percent interest.
This debt will be used to repurchase shares of stock. How many shares
of JKL stock must you sell to unlever your position if you can loan
out funds at 8 percent interest?  

Question #2

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