Use the Information for the Question(s) Below

question 79

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 $5,000 of your own money to invest and you plan on buying Firm X 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 $5,000 investment in Firm Y stock. The number of shares of Firm X stock you purchased is closest to ________.

• A) 100
• B) 417
• C) 1,650
• D) 825

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Definitions:

Real Self

People as they actually are.

Core Principles

Fundamental beliefs or values that guide an individual's actions or the operations of an organization.

Professional Selling

The practice of promoting and selling products or services in a way that adheres to high ethical standards and involves building long-term relationships with clients.

Long-term Relationships

Enduring connections between businesses or between businesses and clients, often characterized by trust, commitment, and mutual benefit.