Bill owns 960 shares of ABC Corp. They are currently 18,302 shares outstanding, with a share...

 

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Bill owns 960 shares of ABC Corp. They are currently 18,302 shares outstanding, with a share price of $18. They have an EBIT of $29,690, which is expected to remain constant forever. The cost of debt for both Bill and ABC is 1%. ABC is currently all equity, but Bill would prefer that they were 48% debt. If Bill wishes to adjust his portfolio to make it behave as if ABC had his preferred capital structure, how much money would Bill have to borrow to buy additional shares with? For ease of calculation, please assume that it is possible to buy or sell fractional shares. Bill owns 960 shares of ABC Corp. They are currently 18,302 shares outstanding, with a share price of $18. They have an EBIT of $29,690, which is expected to remain constant forever. The cost of debt for both Bill and ABC is 1%. ABC is currently all equity, but Bill would prefer that they were 48% debt. If Bill wishes to adjust his portfolio to make it behave as if ABC had his preferred capital structure, how much money would Bill have to borrow to buy additional shares with? For ease of calculation, please assume that it is possible to buy or sell fractional shares.

Answer rating: 100% (QA)

Amount needs to be borrowed can be calculated as Number of Shares Sh... View the full answer