T.L.C.Enterprises just revised its capital structure from a debt-equity ratio of .37 to a debt-equity ratio of .48.The firm's shareholders who prefer the old capital structure should:
A)sell some shares and hold the sale proceeds in cash.
B)sell all of their shares and loan out the entire sale proceeds.
C)do nothing.
D)sell some shares and loan out the sale proceeds.
E)borrow funds and purchase more shares.

Question

Quizplus · Accepted Answer

Shareholders who prefer the old capital structure can replicate it by selling some shares and using the proceeds to lend money, effectively reducing their personal leverage to match the firm's previous debt-equity ratio.

TLCEnterprises Just Revised Its Capital Structure from a Debt-Equity Ratio