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

question 65

Multiple Choice

Use the following information to answer the question(s) below.

Nielson Motors (NM) has no debt. Its assets will be worth $600 million in one year if the economy is strong, but only $300 million if the economy is weak. Both events are equally likely. The market value today of Nielson's assets is $400 million.

-Suppose the risk-free interest rate is 4%.If Nielson borrows $150 million today at this rate and uses the proceeds to pay an immediate cash dividend,then according to MM,the market value of its equity just after the dividend is paid would be closest to:

• A)$0 million.
• B)$150 million.
• C)$250 million.
• D)$400 million.

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Definitions:

Discreet Approach

A method focusing on individual items or events rather than looking at an overall perspective or pattern.

Integral Approach

A methodological approach that seeks to integrate diverse perspectives and disciplines to solve complex problems, often applying to management and organization strategies.

Property Taxes

Taxes assessed by local governments on real estate properties based on their assessed value, used to fund public services.

Constructive Obligation

A duty that arises from a company's actions or words, creating an expectation to act in a certain way even in the absence of a legal requirement.