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Finance

Problem:

River Cruises is allequityfinanced with 50,000 shares. It now proposes to issue $250,000 of bonds and use the proceeds to repurchase 25,000 shares. Suppose an investor currently holds 500 shares in the company but is unhappy with its decision to borrow $250,000.

Required:

Which of the following modifications to her own investment portfolio would offset the effects of the firm's additional borrowing? Explain

a. Borrow $250 on her own account and use the cash to buy additional River Cruises' shares.

b. Raise $250 by selling River Cruises' shares and use the cash to buy the company's debt.

c. Keep her current holding of River Cruises' shares and borrow $250 to invest in the company's bond issue.

Note: Be sure to show how you arrived at your answer.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91163289

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