You own 1,500 shares of stock in a company that is 25% debt financed. The stock...

You own 1,500 shares of stock in a company that is 25% debt financed. The stock price is $50 per share. You want to use homemade leverage to unlever your shares to replicate an all-equity capital structure. What amount will you borrow or lend?

Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit any commas and the $ sign in your response. For example, an answer of $1,000.50 should be entered as 1000.50.

Expert Solution

Company is 25% Debt financed. so debt ratio is 25%
Investor value of shares = number of shares * Market value per share
1500*50
75000


To create homemade un leverage position(all Equity), Investor will have to lend that amount of which has been borrowed by Firm that is 25%
So 25% of Investment value will be lend by investor to create unleveraged position.
75000*25%=	18750

So investor will have to lend $18750 to create an homemade unlevereged position

jeff jeffy answered 3 years ago

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