Lance owns 200 shares of ABC stock with a current market value of $10 a share. ABC has an annual EBIT of $400,000 and a cost of debt of 8%. Currently, ABC is 100% equity ﬁnanced with
100,000 shares outstanding. ABC is going to a 25% debt capital structure by issuing debt and
Redeeming shares. Ignore taxes. What does Lance have to do to return his capital structure position
To approximately its original position?
A) Sell 69 shares and lend the money at 8%.
B) Sell 187 shares and lend the money at 8%.
C) Borrow $1,870 and buy an additional 187 shares.
D) Borrow $690 at 8% and buy an additional 69 shares.
E) Sell 50 shares and loan the money at 8%.

Question

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The Answer of Lance owns 200 shares of ABC stock with a current market value of $10 a share. ABC has an annual EBIT of $400,000 and a cost of debt of 8%. Currently, ABC is 100% equity ﬁnanced with
100,000 shares outstanding. ABC is going to a 25% debt capital structure by issuing debt and
Redeeming shares. Ignore taxes. What does Lance have to do to return his capital structure position
To approximately its original position?
A) Sell 69 shares and lend the money at 8%.
B) Sell 187 shares and lend the money at 8%.
C) Borrow $1,870 and buy an additional 187 shares.
D) Borrow $690 at 8% and buy an additional 69 shares.
E) Sell 50 shares and loan the money at 8%.

Lance Owns 200 Shares of ABC Stock with a Current