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Create the leverage on your own

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Reference no: EM131152571

In the scenario that you currently own 600 shares of JKL, Inc. JKL is an all equity that has 300,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $1,500,000.

You believe that the JKL should finance 20 percent of assets with debt, but management refuses to leverage the company. Given that similar firms' pay 8 percent interest on their debt, answer the following questions.

Part A: How much money should you borrow to create the leverage on your own? Assume you can borrow funds at 8 percent interest.

Part B: How many additional shares of JKL stock must you purchase to create the leverage on your own?

Reference no: EM131152571

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