Katz Is an All-Equity Development Company That Has 36,000 Shares

question 69

Multiple Choice

Katz is an all-equity development company that has 36,000 shares of stock outstanding at a market price of $25 a share.The firm's earnings before interest and taxes are $29,000.Katz has decided to issue $200,000 of debt at a rate of 6 percent and use the proceeds to repurchase shares.What should Leslie do if she owns 600 shares of Katz stock and wants to use homemade leverage to offset the leverage being assumed by the firm?

• A)Borrow money and buy an additional 22 shares
• B)Borrow money and buy an additional 133 shares
• C)Sell 22 shares and loan out the proceeds
• D)Sell 56 shares and loan out the proceeds
• E)Sell 133 shares and loan out the proceeds

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Definitions:

Standard Benefits

Typical or customary advantages provided to employees beyond their wages, such as health insurance, retirement plans, and paid time off.

Endorphins

Natural chemicals in the body that interact with brain receptors to reduce pain perception and boost feelings of pleasure or satisfaction.

Mineralocorticoids

A class of corticosteroids that are involved in regulating sodium and potassium balance in the body.

Prostaglandins

A group of lipids made at sites of tissue damage or infection that are involved in injury and illness processes, such as inflammation.