Suppose That a Company's Equity Is Currently Selling for $22

question 14

Multiple Choice

Suppose that a company's equity is currently selling for $22 per share and that there are 4 million shares outstanding and 30 thousand bonds outstanding, which are selling at 101 percent of par ($1,000) . If the firm was considering an active change to their capital structure so that the firm would have a D/E of 0.9, which type of security (stocks or bonds) would they need to sell to accomplish this, and how much would they have to sell?

• A) $25,736,842 in new debt
• B) $10,434,060 in new debt
• C) $10,434,060 in new equity
• D) $25,742,080 in new equity

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Definitions:

Transferable Resources

Assets or capabilities that can be used or applied in different areas within an organization or in different contexts.

Competitive Advantage

The attributes or conditions that allow a company to produce goods or services better or more cheaply than its competitors.

Core Competence

A primary area of expertise or strength of an organization that gives it a competitive advantage.

Short-Term Advantage

A temporary benefit that gives a business a competitive edge over its rivals in the immediate term.