Use the Information for the Question(s)below

question 45

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 With stock.Using homemade (un) leverage,how much do you need to invest at the risk-free rate so that the payoff of your account will be the same as a $5000 investment in Without stock?

• A)$5000
• B)$0
• C)$2500
• D)$4000

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Definitions:

Body Condition

The physical state of a person's or animal's body, often in terms of muscle and fat levels.

Encoding Specificity

The principle that recall is more effective when the context at the time of encoding is similar to the context at the time of retrieval.

Retrieval Cues

Stimuli that assist in the recall of information stored in memory, facilitating the access to memories.

Theta Waves

Brainwave activity in the frequency range of 4-7Hz, typically associated with drowsiness or the early stages of sleep.