Use the Following Information to Answer the Question(s)below

question 78

Multiple Choice

Use the following information to answer the question(s) below.
d'Anconia Copper is an all-equity firm with 60 million shares outstanding,which are currently trading at $20 per share.Last month,d'Anconia announced that it will change its capital structure by issuing $300 million in debt.The $200 million raised by this issue,plus another $200 million in cash that d'Anconia already has,will be used to repurchase existing shares of stock.Assume that capital markets are perfect.
-Suppose you are a shareholder in d'Anconia Copper holding 300 shares,and you disagree with the decision to lever the firm.You can undo the effect of this decision by:

• A)borrowing $2000 and buying 100 shares of stock.
• B)selling 100 shares of stock and lending $2000.
• C)borrowing $1200 and buying 60 shares of stock.
• D)selling 60 shares of stock and lending $1200.

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Definitions:

Monopolist

A single seller in a market who has significant control over the price and supply of a product.

Marginal Cost

The variation in the overall expense that occurs as a result of increasing the production quantity by one unit.

Consumer Surplus

The benefit consumers receive when they pay less for a product than what they were prepared to pay, measured by the area beneath the demand curve and above the price.

Monopolist

An entity, often a single firm, that holds exclusive control over the supply of a particular good or service, setting prices without competition.