Use the Information for the Question(s) Below

question 50

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 With stock.Using homemade (un) leverage you invest enough at the risk-free rate so that the payoff of your account will be the same as a $5,000 investment in Without stock.The number of shares of With stock you purchased is closest to:

• A) 100
• B) 425
• C) 1,650
• D) 825

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Definitions:

Children

Young human beings who are not yet adults, often characterized by rapid physical growth and developmental changes.

Parents

Individuals who have a child or children, either biologically, through adoption, or other means, and are responsible for their care and upbringing.

Coping Tactic

Strategies or methodologies employed by individuals to manage stress, overcome difficulties, or deal with emotional issues.

Personal Value

An individual's principles or standards of behavior, which guide their actions and judgments.