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:

Punishment

A consequence applied with the intention of reducing or eliminating an undesired behavior.

Rewards

Incentives or positive outcomes that encourage certain behaviors.

Responses

Reactions or behavior exhibited by an organism in response to a stimulus.

Learned Helplessness

A condition in which an individual becomes passive and unable to act to control or change a situation because of repeated exposure to uncontrollable events.