R&F Enterprises is an all equity ﬁrm with 70,000 shares of stock outstanding at a market price of $8 a share. The company has earnings before interest and taxes of $42,000. R&F decides to issue
$200,000 of debt at a 7% rate of interest. The $200,000 will be used to repurchase shares of the
Outstanding stock. Currently, you own 1,500 shares of R&F stock. How many shares of this stock
Must you sell to unlever your position if you can loan out funds at a 7% rate of interest?
A) 489 shares
B) 497 shares
C) 508 shares
D) 536 shares
E) 541 shares

Question

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The Answer of R&F Enterprises is an all equity ﬁrm with 70,000 shares of stock outstanding at a market price of $8 a share. The company has earnings before interest and taxes of $42,000. R&F decides to issue
$200,000 of debt at a 7% rate of interest. The $200,000 will be used to repurchase shares of the
Outstanding stock. Currently, you own 1,500 shares of R&F stock. How many shares of this stock
Must you sell to unlever your position if you can loan out funds at a 7% rate of interest?
A) 489 shares
B) 497 shares
C) 508 shares
D) 536 shares
E) 541 shares

R&F Enterprises Is an All Equity ﬁRm with 70,000 Shares