Use the Information for the Question(s)below

question 111

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 and suppose that MI has zero-coupon debt with a $125 million face value due next year.The initial value of MI's debt is closest to:

• A)$110 million.
• B)$105 million.
• C)$125 million.
• D)$111 million.

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Definitions:

Cell Division

The process by which a parent cell divides into two or more daughter cells.

Replication

The process by which a cell makes a copy of its DNA in preparation for cell division.

Meiosis

A specialized form of cell division that reduces the chromosome number by half, resulting in the production of four gamete cells, each genetically distinct from the parent cell that gave rise to them.

DNA

Deoxyribonucleic acid, the molecule that carries the genetic instructions used in the growth, development, functioning, and reproduction of all known living organisms and many viruses.