Use the Information for the Question(s)below

question 105

Multiple Choice

Use the information for the question(s) below.
JR Industries has a $20 million loan due at the end of the year and under its current business strategy its assets will have a market value of only $15 million when the loan comes due.JR is considering a new much riskier business strategy.While this new riskier strategy can be implemented using JR's existing assets without any additional investment,the new strategy has only a 40% probability of succeeding.If the new strategy is a success,the market value of JR's assets will be $30 million,but if the strategy fails the assets will be worth only $5 million.
-What is the expected payoff to equity holders under JR's new riskier business strategy?

• A)$15 million
• B)$11 million
• C)$20 million
• D)$4 million

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Definitions:

Federal Trade Commission Act

A United States federal law established in 1914 to prevent unfair competition, deceptive acts, and to regulate antitrust.

Clayton Antitrust Act

A piece of legislation passed in the United States in 1914 aimed at preventing anti-competitive practices in their incipiency, specifically addressing issues of price discrimination, exclusive dealing agreements, and mergers and acquisitions that could potentially lead to monopolies.

Wheeler-Lea Act

An amendment to the Federal Trade Commission Act in the United States, focusing on protecting consumers from deceptive and unfair business practices.

Sherman Antitrust Act

A foundational United States antitrust law passed in 1890 that prohibits monopolistic business practices, aiming to promote fair competition for the benefit of consumers.