You currently own 1,100 shares of JKL, Inc. JKL is currently an all equity that has 900,000 shares of stock outstanding at a market price of $30 a share. The company's earnings before interest and taxes are $5,400,000. JKL recently decided to issue $2,700,000 of debt at 5 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? 20 % Part B: How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds at 5 percent interest. 220
You currently own 1,100 shares of JKL, Inc. JKL is currently an all equity that has 900,000 shares of stock outstanding at a market price of $30 a share. The company's earnings before interest and taxes are $5,400,000. JKL recently decided to issue $2,700,000 of debt at 5 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? 20 % Part B: How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds at 5 percent interest. 220
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
Problem 1PS
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![You currently own 1,100 shares of JKL, Inc. JKL is currently an all equity that has 900,000 shares of stock outstanding at a market price
of $30 a share. The company's earnings before interest and taxes are $5,400,000.
JKL recently decided to issue $2,700,000 of debt at 5 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?
20 %
Part B: How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds at 5 percent
interest.
220 x](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa3966bc7-b27e-46ae-8f60-96ab1429e56c%2F9d69b50c-21f2-4980-a011-436250a6eb95%2Fdqdq1pg_processed.png&w=3840&q=75)
Transcribed Image Text:You currently own 1,100 shares of JKL, Inc. JKL is currently an all equity that has 900,000 shares of stock outstanding at a market price
of $30 a share. The company's earnings before interest and taxes are $5,400,000.
JKL recently decided to issue $2,700,000 of debt at 5 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?
20 %
Part B: How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds at 5 percent
interest.
220 x
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