Use the Following Information to Answer the Question(s) Below

question 65

Multiple Choice

Use the following information to answer the question(s) below.

Nielson Motors (NM) has no debt. Its assets will be worth $600 million in one year if the economy is strong, but only $300 million if the economy is weak. Both events are equally likely. The market value today of Nielson's assets is $400 million.

-Suppose the risk-free interest rate is 4%.If Nielson borrows $150 million today at this rate and uses the proceeds to pay an immediate cash dividend,then according to MM,the market value of its equity just after the dividend is paid would be closest to:

• A)$0 million.
• B)$150 million.
• C)$250 million.
• D)$400 million.

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Definitions:

Median

The middle value in a data set, which separates the higher half from the lower half.

Statistically Significant

A term indicating that the results of an analysis show a likely true effect rather than one due to random chance, based on a predetermined threshold of probability.

Statistical Average

A central or typical value calculated from a set of data, commonly referring to the mean, but can also refer to the median or mode.

Random Sample

A specimen that accurately reflects a group, as every individual has an identical opportunity to be included.