Bryan Invested in Bryco,Inc

question 65

Multiple Choice

Bryan invested in Bryco,Inc. stock when the firm was financed solely with equity. The firm is now utilizing debt in its capital structure. To unlever his position,Bryan needs to:

• A) borrow some money and purchase additional shares of Bryco stock.
• B) maintain his current position as the debt of the firm did not affect his personal leverage position.
• C) sell some shares of Bryco stock and hold the proceeds in cash.
• D) sell some shares of Bryco stock and loan it out such that he creates a personal debt-equity ratio equal to that of the firm.
• E) create a personal debt-equity ratio that is equal to exactly 50% of the debt-equity ratio of the firm.

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Definitions:

Operating Leases

Lease agreements that allow for the use of an asset but do not convey rights of ownership, typically used for short-term leasing of equipment or vehicles.

Return On Assets

A financial metric that measures how efficiently a company's management is using its assets to generate earnings.

GAAP

Acronym for Generally Accepted Accounting Principles; the standard framework of guidelines for financial accounting used in any given jurisdiction.

Operating Leases

Operating leases are lease agreements that allow for the use of an asset but do not grant ownership rights of the asset to the lessee.