Kleen Kar has 10 million shares of common stock outstanding, which is traded in the over-thecounter market. The current stock price is $6, so the total value of Kleen Kar’s equity is $60 million. The book value of the firm’s stock is also $60 million, so the stock now sells at its book value. Todd owns 20 percent of the outstanding shares, and others in the management group collectively own an additional 10 percent. The company’s financial manager, Bill Joseph, has been preaching for years that Kleen Kar should use debt in its capital structure. “After all,” says Bill, “everybody else is using at least some debt, and many firms use a great deal of debt financing. I don’t want to put the firm into the junk bond category—that market has been hammered over the past few years-but I do think that judicious use of debt can benefit everyone. Also, by being unleveraged, we are just inviting some raider to line up a lot of debt financing and then make a run at our company.” Todd’s reaction to Bill’s prodding was cautious. However, since one of Todd’s friends just lost her unleveraged company to a raider, he was willing to give Bill a chance to prove his point.