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

question 67

Multiple Choice

Use the following information to answer the question(s) below.
If managed effectively,Rearden Metal will have assets with a market value of $200 million,$300 million,or $400 million next year,with each outcome being equally likely.Managers,however,may decide to engage in wasteful empire building,which will reduce Rearden's market value by $20 million in all cases.Managers may also increase the risk of the firm,changing the probability of each outcome to 50%,5%,and 45% respectively.
-Suppose that the managers at Rearden Metal will engage in empire building unless that behavior increases the likelihood of bankruptcy.If Rearden has $190 million in debt due in one year,then the expected value of Rearden's assets is closest to:

• A)$265 million.
• B)$280 million.
• C)$295 million.
• D)$300 million.

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Definitions:

Craft

Skill in doing or making something, especially with the hands, often implies an artistic or traditional nature of the work.

Rarely Kin

Describes family members or relatives encountered or existing infrequently.

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