You Currently Own 500 Shares in K&S Stores

question 315

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

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Small Office

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