The Lory Bookstore used internal financing as a source of long-term financing for 85% of its total needs in 2011. The company borrowed an additional 25% of its total needs in the long-term debt markets in 2011. What were Lory's net new stock issues in that year?
A) -20%
B) -10%
C) 10%
D) 20%
E) 30%

Question

Quizplus · Accepted Answer

Lory used internal financing for 85% of its total needs, leaving 15% to be financed through external sources. From this 15%, the company borrowed 25% from the long-term debt markets, therefore only 11.25% (15% x 0.75) was financed through net new stock issues. This means that Lory's net new stock issues were negative (-11.25%), indicating that the company did not issue any new stock but rather repurchased some of its existing shares. Therefore, the closest option is B, which represents a negative net new stock issue of 10%.

The Lory Bookstore Used Internal Financing as a Source of Long-Term