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

question 352

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:

Orderly Progression

A systematic and sequenced development or process, ensuring a logical flow from one stage to the next.

Reasoning

The mental process of drawing conclusions, making predictions, or solving problems based on logical thinking and evidence.

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The process of deciding on a subject matter or theme to be discussed, studied, or written about.

Guidance

The process of offering advice, information, or direction to solve problems or make decisions, often provided by mentors, counselors, or professionals.