Assume a Zero Percent Discount Rate for Simplicity

question 1

Multiple Choice

Assume a zero percent discount rate for simplicity. Your current projects cost $200, and you know they will return $800 next year. There is a new project that will cost $300 and will return
$500. Your investors believe, however, that both the current projects and the new projects will
Return only 50%. If you have no cash and can use only equity financing, what will the value of
The combined firm be to the existing shareholders if the new project is undertaken?

• A)$780
• B)$520
• C)$750
• D)$800

---

Definitions:

Trustbusters

Individuals or government entities that work to prevent or break up monopolies and trusts, aiming to encourage competition in the marketplace.

Alcoa Case

A landmark antitrust case in the United States that significantly expanded the concept of monopolistic practices and market domination by the Aluminum Company of America.

Sherman Antitrust

A landmark federal statute in the United States that prohibits monopolistic business practices, aiming to promote fair competition for the benefit of consumers.

Sherman Antitrust Act

A foundational statute in United States antitrust law passed in 1890 that outlaws monopolistic business practices and promotes competition in the marketplace.