Use the Information for the Question(s)below

question 30

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.
-Assuming that in the event of default,20% of the value of MI's assets will be lost in bankruptcy costs,the initial value of MI's equity without leverage is closest to:

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

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Definitions:

Marketing Managers

Professionals responsible for planning, executing, and overseeing marketing strategies and campaigns to promote products or services and increase market share.

Negative Impact

Adverse effects or outcomes that result from a particular action or event.

Its Direction

Refers to the course along which someone or something moves or is aimed to move.

Its Strength

Refers to the inherent capabilities or advantages possessed by an entity, product, or concept that contribute to its effectiveness or success.