Use the Following Information to Answer the Question(s)below

question 32

Multiple Choice

Use the following information to answer the question(s) below.
Galt Industries is trading for $20 per share and has 25 million shares outstanding.Galt Industries has a debt-equity ratio of 0.4 and its debt is zero coupon debt with a ten-year maturity and a yield to maturity of 8%.
-In describing Galt's equity as a call option,the market value of the assets underlying the call option is:

• A)$200 million.
• B)$300 million.
• C)$500 million.
• D)$700 million.

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Definitions:

Credit Risk

The potential for loss due to a borrower's failure to repay a loan or fulfill contract terms.

Liquidity

The ability of an asset to be quickly converted into cash or an individual's or entity's ability to meet immediate and short-term obligations.

Solvency

A financial metric indicating whether a company can meet its long-term financial obligations, focusing on its ability to continue operations over the long term.

Return On Common Equity

Return on Common Equity (ROCE) measures the return a company generates on the common equity held by its shareholders, indicating how effectively equity is used to generate profits.