Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. lance owns 500 shares of abc stock with a current

Lance owns 500 shares of ABC stock with a current market value of $10 a...

50.1K

Verified Solution

Question

Accounting

Lance owns 500 shares of ABC stock with a current market value of $10 a share. ABC has an annual EBIT of $600,000 and a cost of debt of 8%. Currently, ABC is 100% equity financed with 100,000 shares outstanding. ABC is going to a 25% debt capital structure by issuing debt and redeeming shares. Ignore taxes. What does Lance have to do to return his capital structure position to approximately its original position?

Select one:

A. Borrow $12,500 and buy an additional 125 shares.

B. Borrow $690 at 8% and buy an additional 69 shares.

C. Sell 187 shares and lend the money at 8%.

D. Sell 50 shares and loan the money at 8%.

E. Sell 125 shares and lend the money at 8%.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students