Use the Information for the Question(s)below

question 64

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.Suppose that at the start of the year,MI has no debt outstanding,but has 5.6 million shares of stock outstanding.If MI does not issue debt,its share price is closest to:

• A)$5.15.
• B)$23.75.
• C)$23.90.
• D)$25.00.

---

Definitions:

Olecranon Process

A prominent projection on the upper end of the ulna that forms the tip of the elbow.

Distal End

The farthest point from the center of the body, or the point farthest from the point of attachment of a limb or structure.

Upper Limb

The portion of the human body that extends from the shoulder to the hand, including the arm, forearm, wrist, and fingers.

Carpal Tunnel

A narrow passageway in the wrist through which the median nerve and tendons pass.