Use the Information for the Question(s)below

question 23

Multiple Choice

Use the information for the question(s) below.
Monsters Incorporated (MI) is ready to launch a new product.Depending upon the success of this product,MI will have a value of either $100 million,$150 million,or $191 million,with each outcome being equally likely.The cash flows are unrelated to the state of the economy (i.e.risk from the project is diversifiable) so that the project has a beta of 0 and a cost of capital equal to the risk-free rate,which is currently 5%.Assume that the capital markets are perfect.
-The initial value of MI's equity without leverage is closest to:

• A)$133 million.
• B)$147 million.
• C)$140 million.
• D)$150 million.

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Definitions:

Amnestic Syndrome

A collective condition characterized by memory disturbances, typically due to brain injury, disease, or the effects of drugs or alcohol.

Dissociative Identity Disorder

A psychological disorder characterized by the presence of two or more distinct personality states or identities within a single individual.

Dissociative Amnesia

A disorder characterized by an inability to recall important personal information, usually following a traumatic or stressful event.

DSM-III

The third edition of the Diagnostic and Statistical Manual of Mental Disorders, a publication by the American Psychiatric Association that classifies mental disorders using specific criteria.