Use the Information for the Question(s) Below

question 84

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,how much do you need to borrow 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?

• A) $10,000
• B) $5,000
• C) $2,500
• D) $0

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Definitions:

Olfactory Nerves

The first pair of cranial nerves, responsible for the sense of smell.

Trochlear Nerves

The fourth pair of cranial nerves, responsible for eye movement, particularly the superior oblique muscle's function which controls downward and inward eye movement.

Vagus

is a cranial nerve that controls functions in the heart, lungs, and digestive tract, playing a crucial role in the autonomic nervous system.

Thoracic

Relating to the thorax, the part of the body between the neck and the abdomen, which houses the heart and lungs among other organs.