Use the Information for the Question(s) Below

question 7

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 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 $5000 investment in Without stock? The number of shares of With stock you purchased is closest to:

• A) 100
• B) 425
• C) 1650
• D) 825

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Definitions:

Sequence of Events

The chronological arrangement or order in which events or steps occur.

Forest

A large area covered predominantly with trees and undergrowth.

Ecology

The branch of biology that studies the interactions among organisms and their environments, encompassing both biotic and abiotic components.

Trophic Level

The position an organism occupies in a food chain, categorized by the number of energy transfer steps from primary producers to top predators.