Bryan invested in Bryco NV shares when the ﬁrm was ﬁnanced solely with equity.The ﬁrm is now utilizing debt in its capital structure.To unlever his position, Bryan needs to:
A)borrow some money and purchase additional shares of Bryco.
B)maintain his current position as the debt of the ﬁrm did not affect his personal leverage position.
C)sell some shares of Bryco and hold the proceeds in cash.
D)sell some shares of Bryco and loan it out such that he creates a personal debt-equity ratio equal to that of
The ﬁrm.
E)create a personal debt-equity ratio that is equal to exactly 50% of the debt-equity ratio of the ﬁrm.

Question

Quizplus · Accepted Answer

To unlever his position, Bryan needs to create a personal debt-equity ratio equal to that of the firm. This means he needs to introduce some debt into his personal portfolio. Option D suggests selling some shares of Bryco and loaning out the proceeds, which will create a personal debt-equity ratio equal to that of the firm. This allows Bryan to remove the impact of the firm's debt from his investment and evaluate the performance of Bryco solely based on the firm's operations.

Bryan Invested in Bryco NV Shares When the ﬁRm Was