Bryan Invested in Bryco,Inc

question 16

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)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.
• C)sell some shares of Bryco stock and hold the proceeds in cash.
• D)maintain his current position as the debt of the firm did not affect his personal leverage position.
• 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:

Marginal Cost

Marginal cost is the change in total production cost that comes from making or producing one additional unit of a good.

Perfectly Competitive

Refers to a market structure where there are many buyers and sellers, all producing homogenous products, with no single participant having the power to influence the market price.

Industry Supply Curve

A graphical representation showing the relationship between the price of a good and the total output of the industry for that good.

Elastic

Describes a situation where the quantity demanded or supplied changes significantly in response to a change in price.