Abcois an All Equity fiRm with 32,000 Shares of Stock

question 362

Multiple Choice

Abcois an all equity firm with 32,000 shares of stock outstanding at a market price of $40 a share. The company's earnings before interest and taxes are $92,000. Abco has decided to add leverage
To its financial operations by issuing $220,000 of debt at a 9% rate of interest. The debt will be used
To repurchase shares of stock. You own 600 shares of Abco stock. You also lend out funds at a 9%
Rate of interest. How many shares of Abco stock must you sell to offset the leverage that Abco is
Assuming? Assume you lend out all of the funds you receive from the sale of stock.

• A) 97 shares
• B) 103 shares
• C) 249 shares
• D) 497 shares
• E) 503 shares

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Definitions:

Perceptions

The way individuals interpret and understand their sensory information from the world around them.

Group Dynamics

The study of the behavior, interactions, and psychological processes that occur within a social group.

Risky Shift

The phenomenon where groups tend to make riskier decisions together than individuals would make on their own.

Polarization

The process or phenomenon through which opinions, attitudes, or behaviors become increasingly extreme or divided.