Use the Information for the Question(s)below

question 32

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 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,how much do you need to invest at the risk-free rate so that the payoff of your account will be the same as a $5000 investment in Without stock?

• A)$5000
• B)$0
• C)$2500
• D)$4000

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Definitions:

Hemostasis

The physiological process which stops bleeding at the site of an injury while maintaining blood in a fluid state within the vascular system.

Granulation

The formation of new, fibrous tissue during the healing process of a wound, characterized by small, red, grain-like bumps.

Braden Scale

A tool used in healthcare to predict the risk of developing pressure ulcers by assessing factors like sensory perception, moisture, activity, mobility, nutrition, and friction/shear.

Pressure Ulcer

A type of injury to skin and underlying tissue resulting from prolonged pressure, often seen in bedridden patients.