Use the Information for the Question(s)below

question 23

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.
-The initial value of MI's equity without leverage is closest to:

• A)$133 million.
• B)$147 million.
• C)$140 million.
• D)$150 million.

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Definitions:

Single-subject Design

A research design that focuses on the responses of one participant to document the effect of a variable.

Baseline Data

Initial information gathered before a project or program begins, used for comparison with data collected during and after implementation to assess progress.

Outcome

The result or effect of an action, situation, or event.

Confidentiality

The ethical principle that mandates not sharing private information about a client without their consent.