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Use the Information for the Question(s) Below

question 14

Multiple Choice

Use the information for the question(s) below.
Consider two firms, With and Without, that have identical assets that generate identical cash flows. Without is an all-equity firm, with 1 million shares outstanding that trade for a price of $24 per share. With has 2 million shares outstanding and $12 million dollars in debt at an interest rate of 5%.
-Assume that MM's perfect capital markets conditions are met and that you can borrow and lend at the same 5% rate as With.You have $5,000 of your own money to invest and you plan on buying Without stock.Using homemade leverage you borrow enough in your margin account so that the payoff of your margined purchase of Without stock will be the same as a $5,000 investment in With stock.The number of shares of Without stock you purchased is closest to:

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Definitions:

Interest

The cost of borrowing money or the return on investment for savings and loans, expressed as a percentage.

Revaluation

The process of adjusting the book value of a fixed asset or foreign currency to reflect its current market value.

Assets

Assets held or managed by a company anticipated to yield future financial gains.

Partnership

A business structure where two or more individuals share ownership, profits, liabilities, and decision-making processes.