As of June of 2016,Facebook (FB)had No Debt

question 21

Multiple Choice

As of June of 2016,Facebook (FB) had no debt.Suppose the firm's managers consider issuing zero-coupon debt with a face value of $231 billion due in January of 2018 (19 months) and using the proceeds to pay a special dividend.FB has 2.31 billion shares outstanding,with a market price (June,2016) of $116.62.The risk-free rate over this horizon is 0.25%. There is a call option trading on FB with a strike price of $100 and a price of $29.24.What is the implied credit spread of Facebook's proposed debt issue assuming perfect capital markets?

• A)8.89%
• B)8.64%
• C)19.74%
• D)Cannot be determined from information given.

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Definitions:

Market Value

The current price at which an asset or service can be bought or sold, determined by supply and demand.

Intermediate Goods

Goods that are used in the production process of other goods and are not sold directly to end consumers.

Gross Domestic Product

A measure of the economic production of a country within a given time period, calculated by adding the value of all goods and services produced within that country.

Charlie Chaplin

A British comedian, filmmaker, and composer who became one of the most iconic figures in the silent film era with his on-screen character, "The Tramp."