Clover Fields Is an All Equity Firm with 55,000 Shares

question 350

Multiple Choice

Clover Fields is an all equity firm with 55,000 shares of stock outstanding at a market price of $17.50 a share. The company has earnings before interest and taxes of $115,500. Clover Fields decides to issue $350,000 of debt at an 8% rate of interest. The debt will be used to repurchase shares of the outstanding stock. Currently, you own 800 shares of Clover Fields stock. How many shares of this stock must you sell to unlever your position if you can lend out funds at an 8% rate of interest?

• A) 177 shares
• B) 209 shares
• C) 236 shares
• D) 274 shares
• E) 291 shares

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Definitions:

Procedural Justice

Concerns the fairness and transparency of the processes used to make decisions, promoting impartiality and equal treatment.

Equivalent Qualifications

Credentials or qualifications that are considered to be equal in value, level, or function to others, despite being different in nature.

Same Consideration

The act of treating all parties or factors impartially and equally in a decision-making process.

Moral-rights View

An ethical perspective asserting that individuals have fundamental rights and liberties that must be respected in decision-making processes.