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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 equity is closest to:
Market Power
The ability of a company or entity to influence the price and output levels in a market.
Market Shares
The portion of a market controlled by a particular company or product, often expressed as a percentage of total sales in the sector.
Herfindahl Index
An indicator of company sizes within an industry, showing the level of competitive interaction among them.
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