Solution-Create the leverage, A) How much money should you

Create the leverage

Reference no: EM131152827

You currently own 1,400 shares of RBJ, Inc. RBJ is an all equity firm that has 100,000 shares of stock outstanding at a market price of $45 per share. The company's EBIT are $800,000. You believe that RBJ should finance 20% of assets with debt but management refuses to leverage the company. Given that similar firms pay 8% on debt, answer the following two questions;

A) How much money should you borrow to create the leverage on your own assuming you can borrow funds at 8% interest?

B) How many additional shares of RBJ stock must you purchase to create the leverage on you own?

Reference no: EM131152827

Questions Cloud

Provide background information that includes the patient : Select a theory from the biological approach from the course textbook (choose either the genetic or neurological influence). Refer to the textbook or an academic source to explain the theory. Next, apply the theory by explaining how the individual..

What is the bond real rate of return : A $1,000 par value bond carries a coupon rate of 6.5 percent and has a yield to maturity of 7.29 percent. The inflation rate is 3.13 percent. What is the bond's real rate of return?

Determine the required minimum wall thickness t of the shaft : determine the required minimum wall thickness t of the shaft to the nearest millimeter to safely support the load.

Develop a problem statement and an rfp : Pick a company in your area of interest to explore. You will utilize knowledge about the company and industry to develop a proposed contract, procurement plan, and risk management plan. Develop a problem statement and an RFP. Write a proposal, incl..

Create the leverage : A) How much money should you borrow to create the leverage on your own assuming you can borrow funds at 8% interest? B) How many additional shares of RBJ stock must you purchase to create the leverage on you own?

Research rebranding strategy : Identify one current struggling consumer product. Access the GCU Library business data bases. Research "rebranding strategy.

What ehealth options did you find : Put on your "customer hat" and visit a hospital website of your choice (and do not forget to cite your selection at the end of your posting). What eHealth options did you find? Do you think this particular hospital exploits eHealth to maximum advanta..

Discounted cash flow model : You have been asked to perform a stock valuation prior to the annual shareholders meeting next week. The two models you've selected to value the firm are 1) the dividend discount model and 2) the discounted cash flow model.

Firm decision to pay dividends versus repurchase shares : In a "perfect world" capital market, how important is a firm's decision to pay dividends versus repurchase shares? Under what conditions would you have a tax preference for share repurchase rather than dividends?

User Account

All Pages

Create the leverage

Reference no: EM131152827

Reference no: EM131152827

Questions Cloud

Reviews

Write a Review

Finance Basics Questions & Answers

Financial reporting and analysis

A report on financial accounting

Describe the types of financial ratios

Differences between sole proprietorship and corporation

Prepare a cash budget statement

What are the implied interest rates

State pricing theory and no-arbitrage pricing theory

Small business administration

Effect of financial leverage

Evaluate the basis for the payment to the lender

Importance of opps, ipps, mpfs and dmepos

Time value of money

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT