Bryan invested in Bryco stock when the firm was financed solely with equity.The firm now has a debt-equity ratio of .3.To maintain the same level of leverage he originally had,Bryan needs to:
A)borrow some money and purchase additional shares of Bryco stock.
B)maintain his current position in Bryco stock.
C)sell some shares of Bryco stock and hold the proceeds in cash.
D)sell some shares of Bryco stock and loan out the proceeds.
E)sell half of his Bryco stock and invest the proceeds in risk-free securities.

Question

Quizplus · Accepted Answer

Bryan originally invested when the firm was all equity, meaning he had no leverage. To maintain the same leverage level after the firm takes on debt, he should sell some shares and loan out the proceeds, effectively reducing his equity exposure and mimicking the firm's new debt-equity ratio.

Bryan Invested in Bryco Stock When the Firm Was Financed