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Use the Information for the Question(s) Below

question 89

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 $5000 of your own money to invest and you plan on buying Without stock.Using homemade leverage you borrow enough in your margin account so that the payoff of your margined purchase of Without stock will be the same as a $5000 investment in with stock.The number of shares of Without stock you purchased is closest to:

Definitions:

Asch

Refers to Solomon Asch, known for his research on conformity, including his famous experiments that demonstrated the power of social pressure.

Milgram

Stanley Milgram was a psychologist best known for his controversial experiment on obedience to authority figures, conducted in the 1960s.

Compliance

The act of conforming to a request, command, or set of rules, often analyzed in social psychology to understand obedience and group behavior.

Obedience

A form of social influence where an individual acts in response to a direct order from another individual, usually an authority figure.