R&F Enterprises Is an All Equity Firm with 70,000 Shares

Multiple Choice

R&F Enterprises is an all equity firm with 70,000 shares of stock outstanding at a market price of $8 a share. The company has earnings before interest and taxes of $42,000. R&F decides to issue $200,000 of debt at a 7% rate of interest. The $200,000 will be used to repurchase shares of the outstanding stock. Currently, you own 1,500 shares of R&F stock. How many shares of this stock must you sell to unlever your position if you can loan out funds at a 7% rate of interest?

A) 489 shares
B) 497 shares
C) 508 shares
D) 536 shares
E) 541 shares