Use the Following Information to Answer the Question(s)below

question 95

Multiple Choice

Use the following information to answer the question(s) below.
If managed effectively,Rearden Metal will have assets with a market value of $200 million,$300 million,or $400 million next year,with each outcome being equally likely.Managers,however,may decide to engage in wasteful empire building,which will reduce Rearden's market value by $20 million in all cases.Managers may also increase the risk of the firm,changing the probability of each outcome to 50%,5%,and 45% respectively.
-Suppose that the managers at Rearden Metal will increase risk to maximize the expected payoff to equity holders.If Rearden has $180 million in debt due in one year,then the expected value of Rearden's assets is closest to:

• A)$280 million.
• B)$295 million.
• C)$300 million.
• D)$900 million.

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Definitions:

Lower Costs

The reduction of expenses associated with producing or offering goods and services, aiming to improve efficiency and profitability.

Image Building

The strategic process of creating, improving, or maintaining a positive public perception of a company, brand, or individual.

Marketing Information

Data collected and analyzed regarding markets, customers, competitors, and trends to support marketing strategy and decision making.

Public Information

Data, facts, or insights that are disseminated to the public, typically by governments, organizations, or individuals, to keep them informed about activities, policies, or developments.