You currently own 1,300 shares of a Company. The Company is currently an all equity that has 300,000 shares of stock outstanding at a market price of $35 a share. The company's earnings before interest and taxes are $2,100,000.
The Company recently decided to issue $2,100,000 of debt at 5 percent interest. This debt will be used to repurchase shares of stock. Ignore taxes and answer the following two questions:
Part A: What is the Company's target debt to asset ratio? %
Part B: How many shares of the Company's stock must you sell to undo the leverage? Assume that you can loan out those funds at 5 percent interest.