In the scenario that you currently own 600 shares of JKL, Inc. JKL is an all equity that has 300,000 shares of stock outstanding at a market price of $25 a share. The company's earnings before interest and taxes are $1,500,000.
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 8 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 8 percent interest.
Part B: How many additional shares of JKL stock must you purchase to create the leverage on your own?