Use the Information for the Question(s)below

question 12

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.
-Assume that in the event of default,20% of the value of MI's assets will be lost in bankruptcy costs and suppose that MI has zero-coupon debt with a $125 million face value due next year.The initial value of MI's equity is closest to:

• A)$30 million.
• B)$29 million.
• C)$15 million.
• D)$24 million.

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Definitions:

Flashbulb Memory

Highly detailed and vivid memories of significant or emotional events, which seem to be recorded in the mind like a picture taken by a flashbulb.

Implicit Memory

Unconscious retention and recollection of past experiences.

Procedural Memory

A type of long-term memory that enables people to perform tasks without conscious awareness of having learned them.

Semantic Network

A conceptual structure used in cognitive psychology and artificial intelligence which represents semantic relations between concepts in a network.