Deltona,USA Is a Development Company That Is Currently Financed with 100

question 41

Multiple Choice

Deltona,USA is a development company that is currently financed with 100 per cent equity.There are 15 000 shares outstanding at a market price of $50 a share.Deltona has earnings before interest and taxes (EBIT) of $20 000.The firm has decided to issue $250 000 of debt at a rate of 8 per cent and use the proceeds to repurchase shares.Theresa owns 500 shares of Deltona and wants to use homemade leverage to offset the leverage used by Deltona.Theresa should:

• A)buy an additional 167 shares
• B)sell 250 shares
• C)sell 133 shares
• D)buy an additional 150 shares
• E)sell 167 shares

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