You Currently Own 500 Shares in K&S Stores

question 91

Multiple Choice

You currently own 500 shares in K&S Stores. K&S is currently an all equity firm that has 25,000 shares of stock outstanding at a market price of $10 a share. The company's earnings before interest and taxes are $20,000. K&S has decided to issue $150,000 of debt at a 6% rate of interest. This $150,000 will be used to repurchase shares of stock. How many shares of K&S stock must you sell to unlever your position if you can lend out funds at a 6% rate of interest?

• A) 150 shares
• B) 200 shares
• C) 250 shares
• D) 300 shares
• E) 500 shares