Business, 27.12.2020 15:30 atefah88

You currently own 1000 shares of JKL Inc.. JKL is an all equity firm that has 80,000 shares of stock outstanding at a market price of $50 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. If you prefer the original capital structure of 100% equity and the associated payoffs, you will take which of the following actions to achieve the original payoffs (under 100% equity)? a. borrow $37,500 at 8% to purchase another 750 shares.
b. borrow $12,500 at 8% to purchase another 250 shares.
c. sell 500 shares and loan out the proceeds at 8%
d. sell 250 shares and loan out the proceeds at 8%
e. None of the above

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You currently own 1000 shares of JKL Inc.. JKL is an all equity firm that has 80,000 shares of stock...

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