How much money should you borrow to create the leverage

Assignment Help Finance Basics

Reference no: EM131965223

Question: You currently own 1,300 shares of JKL, Inc. JKL is an all equity that has 300,000 shares of stock outstanding at a market price of $15 a share. The company's earnings before interest and taxes are $900,000. You believe that the JKL should finance 20 percent of assets with debt, but management refuses to leverage the company. Given that similar firms' pay 12 percent interest on their debt, answer the following questions.

Part A: How much money should you borrow to create the leverage on your own? Assume you can borrow funds at 12 percent interest.

Part B: How many additional shares of JKL stock must you purchase (using the borrowed funds in Part A) to create the leverage on your own?

Reference no: EM131965223

Questions Cloud

How would you address the crisis that eboni is experiencing : What strategies can you use to ensure that your personal values will not influence your practice with Eboni?

Idea of bringing families and communities : The themes that are present among these products is that they all represent household consumer brands that promote the idea of bringing families and communities

Calculate the value of an asset : You are currently making annual payments to a local bank of $1, 200 per year. Your loan with the bank has a remaining life of 5 years.

Identify the specific components of an institution : Every country in the world is constructed around the same set of institutional frameworks that differ only in how governments manage them.

How much money should you borrow to create the leverage : How much money should you borrow to create the leverage on your own? Assume you can borrow funds at 12 percent interest.

Discuss about the potential threats to us businesses : Take on the role of an advance research team for an organization exploring the opening of an office in Asia.

What is expected return of hd stock after this transaction : What is the beta of HD stock after this capital restructure? What is the expected return of HD stock after this transaction?

Design and production of a product : 49309 Quality Planning and Analysis - aim of providing students a practical case where they could apply the various quality (planning and analysis) tools

Construct the income statement for given year : Construct the Income Statement for 2016. What is the Net Income? What was NOPAT for 2016? What caused the difference between net income and NOPAT?

User Account

All Pages