You currently own 900 shares of JKL, Inc. JKL is currently an all equity that has 1,000,000 shares of stock outstanding at a market price of $15 a share. The company's earnings before interest and taxes are $3,000,000. JKL recently decided to issue $3,000,000 of debt at 10 percent interest. This debt will be used to repurchase shares of stock. Ignore taxes and answer the following two questions: Part A: What is JKL's target debt to asset ratio? | % Part B: How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds at 10 percent interest.

You currently own 900 shares of JKL, Inc. JKL is currently an all equity that has 1,000,000 shares of stock outstanding at a market price of $15 a share. The company's earnings before interest and taxes are $3,000,000. JKL recently decided to issue $3,000,000 of debt at 10 percent interest. This debt will be used to repurchase shares of stock. Ignore taxes and answer the following two questions: Part A: What is JKL's target debt to asset ratio? | % Part B: How many shares of JKL stock must you sell to undo the leverage? Assume that you can loan out those funds at 10 percent interest.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

Section: Chapter Questions

Problem 27E: Percy Company has 15,000 shares of common stock outstanding during all of 2019. It also has 2...

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