Use the Information for the Question(s)below

question 30

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.
-Assuming that in the event of default,20% of the value of MI's assets will be lost in bankruptcy costs,the initial value of MI's equity without leverage is closest to:

• A)$150 million.
• B)$147 million.
• C)$140 million.
• D)$133 million.

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Definitions:

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A type of discharge from a wound or infection site that is often thick, yellow, green, or brown in color, indicating the presence of pus and a bacterial infection.

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A fungal infection of the scalp, also known as scalp ringworm, leading to hair loss, scaliness, and itching.

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A viral infection also known as fifth disease, characterized by a bright red rash on the cheeks, often in children.

Fifth Disease

A mild viral infection that typically causes a bright red rash on the cheeks, often prevalent among children.