Lance owns 500 shares of ABC stock with a current market value of $10 a...
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Accounting
Lance owns 500 shares of ABC stock with a current market value of $10 a share. ABC has an annual EBIT of $600,000 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?
Select one:
A. Borrow $12,500 and buy an additional 125 shares.
B. Borrow $690 at 8% and buy an additional 69 shares.
C. Sell 187 shares and lend the money at 8%.
D. Sell 50 shares and loan the money at 8%.
E. Sell 125 shares and lend the money at 8%.
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