Use the Information for the Question(s)below

question 31

Multiple Choice

Use the information for the question(s) below.
Consider two firms,With and Without,that have identical assets that generate identical cash flows.Without is an all-equity firm,with 1 million shares outstanding that trade for a price of $24 per share.With has 2 million shares outstanding and $12 million in debt at an interest rate of 5%.
-Assume that MM's perfect capital market conditions are met and that you can borrow and lend at the same 5% rate as With.You have $5000 of your own money to invest and you plan on buying Without stock.Using homemade leverage,how much do you need to borrow in your margin account so that the payoff of your margined purchase of Without stock will be the same as a $5000 investment in With stock?

• A)$10,000
• B)$5000
• C)$2500
• D)$0

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Definitions:

Classificatory System

An organized method for categorizing and grouping entities based on common characteristics or relationships.

Linnaeus

Carl Linnaeus was an 18th-century Swedish botanist, physician, and zoologist who laid the foundations for the modern biological naming scheme of binomial nomenclature.

Natural Selection

A key mechanism of evolution, where organisms better adapted to their environment tend to survive and produce more offspring.

Creation Story

A myth or narrative explaining how the world and its inhabitants came into existence, often found in religious or cultural traditions.