Use the Information for the Question(s)below

question 22

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 you invest enough at the risk-free rate so that the payoff of your account will be the same as a $5000 investment in Without stock? The number of shares of With stock you purchased is closest to:

• A)100.
• B)425.
• C)1650.
• D)825.

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Definitions:

Cross-price Elasticity

A measure of how the quantity demanded of one good responds to a change in the price of another good, indicating the relationship between goods as substitutes or complements.

Glazed Donuts

Sweet pastries typically made of deep-fried dough coated with a thin layer of sugar glaze.

Cinnamon Rolls

A sweet baked pastry known for its spiral shape and cinnamon-spiced filling, often topped with icing or glaze.

Cross-price Elasticity

A measure of how the demand for one good responds to a change in the price of another good.