You currently own 1,200 shares of JKL, Inc. JKL is currently an all equity that has 700,000 shares of stock outstanding ata market price of $20 a share. The company's earnings before interest and taxes are $2,800,000. KL recently decided to issue $1,400,000 of debt at 8 percent interest. This debt will be used to repurchase shares of ck. Ignore taxes and answer the following two questions: A: What is JKL's target debt to asset ratio? How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds Interest.
You currently own 1,200 shares of JKL, Inc. JKL is currently an all equity that has 700,000 shares of stock outstanding ata market price of $20 a share. The company's earnings before interest and taxes are $2,800,000. KL recently decided to issue $1,400,000 of debt at 8 percent interest. This debt will be used to repurchase shares of ck. Ignore taxes and answer the following two questions: A: What is JKL's target debt to asset ratio? How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds Interest.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:You currently own 1,200 shares of JKL, Inc. JKL is currently an all equity that has 700,000 shares of stock outstanding at a
market price of $20 a share. The company's earnings before interest and taxes are $2,800,000.
KL recently decided to issue $1,400,000 of debt at 8 percent interest. This debt will be used to repurchase shares of
ck. Ignore taxes and answer the following two questions:
A: What is JKL's target debt to asset ratio?
How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds
Interest.
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