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

question 74

Multiple Choice

Use the following information to answer the question(s) below.
Nielson Motors has a debt-equity ratio of 1.8,an equity beta of 1.6,and a debt beta of 0.20.It is currently evaluating the following projects,none of which would change Nielson's volatility. (All amounts are in $millions. )
-The total debt overhang associated with accepting project 1 is closest to:

• A)$0 million.
• B)$12.5 million.
• C)$14.4 million.
• D)$22.5 million.

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Definitions:

Perfectly Negatively Correlated

Refers to a relationship where one variable increases exactly as the other decreases, indicating a complete opposite movement between the two.

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, often used to quantify the risk of an investment.

Global-minimum Variance Portfolio

An investment portfolio that is constructed to have the lowest possible risk (variance) for a given rate of return.

Investment Opportunity Set

The set of available investment choices available to an investor, considering their risk tolerance and time horizon for investing.