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Create the leverage

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Reference no: EM131152827

You currently own 1,400 shares of RBJ, Inc. RBJ is an all equity firm that has 100,000 shares of stock outstanding at a market price of $45 per share. The company's EBIT are $800,000. You believe that RBJ should finance 20% of assets with debt but management refuses to leverage the company. Given that similar firms pay 8% on debt, answer the following two questions;

A) How much money should you borrow to create the leverage on your own assuming you can borrow funds at 8% interest?

B) How many additional shares of RBJ stock must you purchase to create the leverage on you own?

Reference no: EM131152827

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