You Own 400 Shares of Kaiser

Multiple Choice

You own 400 shares of Kaiser. Kaiser is currently an all equity firm that has 12,000 shares of stock outstanding at a market price of $50 a share. The company's earnings before interest and taxes are
$20,000. The dividend payout ratio is 100%. Kaiser has decided to issue $100,000 of debt at a 9%
Rate of interest. This $100,000 will be used to repurchase shares of stock. How many shares of
Kaiser stock must you sell to unlever your position if you can loan out funds at a 9% rate of interest?

A) 67 shares
B) 100 shares
C) 133 shares
D) 160 shares
E) 200 shares