Katz Is an All-Equity Development Company That Has 52,000 Shares

question 49

Multiple Choice

Katz is an all-equity development company that has 52,000 shares of stock outstanding at a market price of $32 a share.The firm's earnings before interest and taxes are $46,000.Katz has decided to issue $176,000 of debt at a rate of 8 percent and use the proceeds to repurchase shares.What should Leslie do if she owns 500 shares of Katz stock and wants to use homemade leverage to offset the leverage being assumed by the firm?

• A)Borrow money and buy an additional 53 shares
• B)Borrow money and buy an additional 56 shares
• C)Sell 48 shares and loan out the proceeds
• D)Sell 56 shares and loan out the proceeds
• E)Sell 53 shares and loan out the proceeds

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Definitions:

Limit Choices

Refers to reducing the number of options available to make a decision easier or to focus on more viable alternatives.

Constant

Something that remains unchanged or stable over a period of time.

Personality

The combination of characteristics or qualities that form an individual's distinctive character and psychological identity.

Perceive Ourselves

Refers to the way individuals understand and view their own identities, qualities, and self-concept.