Use the Information for the Question(s)below

question 68

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.
-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)$15 million.
• C)$29 million.
• D)$24 million.

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Definitions:

Ectoderm

The outermost layer of cells or tissue of an embryo in early development, giving rise to the formation of the nervous system and the skin epidermis.

Germ Layer

One of the three primary layers of cells (ectoderm, mesoderm, endoderm) in the early embryo from which all the organs and tissues of the body eventually develop.

Excretory System

A system of organs responsible for the removal of waste products and excess substances from an organism's body.

Ectoderm

The outermost layer of cells or tissue of an embryo in early development, giving rise to the epidermis and nervous system among others.