Use the Information for the Question(s)below

question 11

Multiple Choice

Use the information for the question(s) below.
If it is managed efficiently,Luther Industries will have assets with market value of $100 million,$300,million,or $500 million next year,with each outcome being equally likely.Managers may,however,engage in wasteful empire building which will reduce the firm's market value by $20 million in all cases.Managers may also increase the risk of the firm,changing the probability of each outcome to 50%,20%,and 30% respectively.
-If it is managed efficiently,then the expected market value of Luther's assets is closest to:

• A)$300 million.
• B)$260.
• C)$240.
• D)$280 million.

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Definitions:

Main Function

The primary or most important role or purpose that an entity or system is designed or intended to fulfill.

Credit Risk

The probability of loss due to a borrower's failure to make payments as agreed upon.

Higher Interest Rate

A situation where lending rates are elevated, often leading to reduced borrowing and slower economic growth.

Financial Markets

Marketplaces where individuals and entities can trade financial securities, commodities, and other fungible assets.