You currently own 500 shares in K&S Stores. K&S is currently an all equity firm that has 25,000 shares of stock outstanding at a market price of $10 a share. The company's earnings before interest and taxes are $20,000. K&S has decided to issue $150,000 of debt at a 6% rate of interest. This $150,000 will be used to repurchase shares of stock. How many shares of K&S stock must you sell to unlever your position if you can lend out funds at a 6% rate of interest?
A) 150 shares
B) 200 shares
C) 250 shares
D) 300 shares
E) 500 shares

Question

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The Answer of You currently own 500 shares in K&S Stores. K&S is currently an all equity firm that has 25,000 shares of stock outstanding at a market price of $10 a share. The company's earnings before interest and taxes are $20,000. K&S has decided to issue $150,000 of debt at a 6% rate of interest. This $150,000 will be used to repurchase shares of stock. How many shares of K&S stock must you sell to unlever your position if you can lend out funds at a 6% rate of interest?
A) 150 shares
B) 200 shares
C) 250 shares
D) 300 shares
E) 500 shares

You Currently Own 500 Shares in K&S Stores