Jessica invested in QRT stock when the company was unlevered. Since then, QRT has changed its capital structure and now has a debt-equity ratio of .36. To unlever her position, Jessica needs to:
A) borrow some money and purchase additional shares of QRT stock.
B) maintain her current equity position as the debt of the firm does not affect her personally.
C) sell 36 percent of her shares of QRT stock and hold the proceeds in cash.
D) sell 36 percent of her shares of QRT stock and loan out the sale proceeds.
E) create a personal debt-equity ratio of .36.

Question

Quizplus · Accepted Answer

To unlever her position, Jessica should sell 36 percent of her shares and loan out the sale proceeds to offset the firm's leverage.

Jessica Invested in QRT Stock When the Company Was Unlevered