Use the Information for the Question(s)below

question 64

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.Suppose that at the start of the year,MI has no debt outstanding,but has 5.6 million shares of stock outstanding.If MI does not issue debt,its share price is closest to:

• A)$5.15.
• B)$23.75.
• C)$23.90.
• D)$25.00.

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Definitions:

Psychological Distress

A state of emotional suffering typically characterized by symptoms of depression and anxiety, which can affect an individual's daily functioning.

Reciprocal Determinism

A concept in psychology proposed by Albert Bandura that suggests individual behavior, environment, and cognition all influence each other.

Albert Bandura

A psychologist recognized for contributions to social learning theory and the notion of self-efficacy.

Environments

The surroundings or conditions in which a person, animal, or plant lives or operates, encompassing both natural and built elements.