You Currently Own 600 Shares of JKL,Inc

question 44

Multiple Choice

You currently own 600 shares of JKL,Inc.JKL is an all equity firm that has 75,000 shares of stock outstanding at a market price of $40 a share.The company's earnings before interest and taxes are $140,000.JKL has decided to issue $1 million of debt at 8 percent interest.This debt will be used to repurchase shares of stock.How many shares of JKL stock must you sell to unlever your position if you can loan out funds at 8 percent interest?

• A)120 shares
• B)150 shares
• C)180 shares
• D)200 shares
• E)250 shares

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Definitions:

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues, indicating the company's profitability.

Sales Increase

A rise in the amount of goods or services sold by a company, indicating a growth in revenue.

Additional Debt

New borrowing taken on by a company or individual, in addition to any existing debt.

Maximum Capacity

The highest level of output that a company can sustain to make a product or provide a service.