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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A preliminary layout or draft version of a spreadsheet used for planning or testing purposes.

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The primary software that manages computer hardware and software resources, providing common services for computer programs.

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