Use the Information for the Question(s) Below

question 69

Multiple Choice

Use the information for the question(s) below.
Consider two firms, Firm X and Firm Y, that have identical assets that generate identical cash flows. Firm Y is an all-equity firm, with 1 million shares outstanding that trade for a price of $24 per share. Firm X has 2 million shares outstanding and $12 million 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 Firm X. You have $5000 of your own money to invest and you plan on buying Firm Y stock. Using homemade leverage, how much do you need to borrow in your margin account so that the payoff of your margined purchase of Firm Y stock will be the same as a $5,000 investment in Firm X stock?

• A) $10,000
• B) $5,000
• C) $2,500
• D) $0

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Definitions:

Acquaintance Rape

A nonconsensual sexual encounter by two people who just happen to be in the same place and know each other.

Colleague

A person with whom one works, especially in a profession or business.

Conference Room

A room provided for singular events such as business conferences and meetings, often found in workplaces, hotels, and institutions.

Consent

The mutual agreement between participants to engage in a specific activity, often discussed within the context of sexual activities, highlighting the importance of informed, voluntary, and enthusiastic participation.