Company A currently functions as an unlevered firm with
200,000 shares of stock outstanding and a market price of
$12 a share. The company's EBIT is $300,000.
The company borrows $500,000, at 5%.
Suppose you are an investor who currently own 10,000 shares
of Company A's stock.
If you wish to unlever your position, how many
shares will you continue to own, if you can loan out funds at
5 percent interest?
Ignore taxes.
Please show all working and formulas used. Explain any necessary
steps.