Use the Information for the Question(s)below

question 12

Multiple Choice

Use the information for the question(s) below.
Monsters Incorporated (MI) is ready to launch a new product.Depending upon the success of this product,MI will have a value of either $100 million,$150 million,or $191 million,with each outcome being equally likely.The cash flows are unrelated to the state of the economy (i.e.risk from the project is diversifiable) so that the project has a beta of 0 and a cost of capital equal to the risk-free rate,which is currently 5%.Assume that the capital markets are perfect.
-Assume that in the event of default,20% of the value of MI's assets will be lost in bankruptcy costs and suppose that MI has zero-coupon debt with a $125 million face value due next year.The initial value of MI's equity is closest to:

• A)$30 million.
• B)$29 million.
• C)$15 million.
• D)$24 million.

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Definitions:

Ecosystems

Complex communities of organisms and their physical environment interacting as an ecological unit in nature.

Food Chains

A hierarchy of organisms each dependent on the next as a source of food, illustrating the flow of energy and nutrients.

Chlorophyll

A pigment found in plants and algae that's critical for photosynthesis, allowing them to absorb light energy.

Green

A color associated with wavelengths of light perceived by the human eye, commonly associated with nature, growth, and renewal.