Determining leverage and capital structure

Reference no: EM1336775

Katz is an all equity development company that has 36,000 shares of stock outstanding at a market price of $25 a share. The firm's earnings before interest and taxes are $29,000. Katz has decided to issue $200,000 of debt at a rate of 6 percent and use the proceeds to repurchase shares. What should Faith do if she owns 500 shares of Katz stock and wants to use homemade leverage to offset the leverage being assumed by the firm?

a) Borrow money and buy an additional 22 shares.

b) Borrow money and buy an additional 111 shares.

c) Sell 22 shares and loan out the proceeds.

d) Sell 56 shares and loan out the proceeds.

e) Sell 111 shares and loan out the proceeds.

Reference no: EM1336775

Questions Cloud

Illustrate what would be the impact on labor : Illustrate what would be the impact on labor and capital markets of such a shift in tax policy. What is the likely differential incidence of substituting a payroll tax for an equal-yield corporate income tax.

Purchasing products of firm : Discuss three situations in which you would not purchase the products of the firm even though it is very socially responsible.

Assume a direct access file consists of sectors : assume a direct access file consists of sectors with 1024 byte capacity. Suppose also that records are 32 bytes long. On which logical sector do the following logical records lie? What is the relative record number in the sector?

What may cause the loss of one control file : Why must a business have its database in ARCHIVELOG mode?

Determining leverage and capital structure : Katz is an all equity development company that has 36,000 shares of stock outstanding at a market price of $25 a share. The firm's earnings before interest and taxes are $29,000.

Reverse flow logistics consists of the following : Reverse Flow Logistics consists of the following: returns, repairs, rework, remanufacturing, and usable containers

Explain positioning and marketing ito : Explain Positioning and marketing ITO What kind of image would you develop for ITO, in terms of product, price, place and promotion

Indicating income taxes presented in balancesheet : Corporation's 2011 income statement, beginning with "Income before income taxes and extraordinary item," and indicate how deferred income taxes should be presented on the December 31, 2011, balance sheet.

Apple increase investment in research and development : How should Apple increase investment in research and development?

User Account

All Pages