Learn and Earn Company Is Financed Entirely by Common Stock

question 64

Multiple Choice

Learn and Earn Company is financed entirely by common stock that is priced to offer a
20% expected rate of return. The stock price is $60 and the earnings per share are $12. The company wishes to repurchase 50% of the stock and substitutes an equal value of debt yielding 8%. Suppose that before refinancing, an investor owned 100 shares of Learn and Earn common stock. What should he do if he wishes to ensure that risk and expected return on his investment are unaffected by refinancing?

• A) Borrow $3,000 and buy 50 more shares
• B) Continue to hold 100 shares
• C) Sell 50 shares and purchase $3,000 debt (bonds)
• D) None of the above

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Definitions:

Patients' Understanding

The level at which individuals comprehend their health conditions, treatment plans, and healthcare instructions.

Noncompliance

The act of not following prescribed rules, regulations, or advice.

Physicians

Medical professionals who diagnose and treat illnesses, manage patient care, and offer guidance on maintaining health.

Serious Illnesses

Conditions that are potentially life-threatening or that can cause significant impairment to quality of life.