Use the Information for the Question(s)below

question 54

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 present value of MI's financial distress costs is closest to:

• A)$20.0 million.
• B)$6.6 million.
• C)$6.3 million.
• D)$19.0 million.

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Definitions:

Wagner Act

Also known as the National Labor Relations Act of 1935, a foundational U.S. law that established the rights of employees to form unions and engage in collective bargaining.

Working Conditions

The environment in which an individual works, including aspects like safety, hours, physical conditions, and legal rights, which affect the worker's well-being.

Wagner Act

A foundational piece of labor law in the United States, officially known as the National Labor Relations Act of 1935, which established the rights of employees to organize, engage in collective bargaining, and take collective action including striking.

Union Representation

The act or process whereby a labor union serves as an intermediary between employees and management, negotiating labor contracts and seeking to resolve disputes.