Use the Information for the Question(s)below

question 13

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.
-Suppose that MI has zero-coupon debt with a $125 million face value due next year.The total value of MI with leverage is closest to:

• A)$133 million.
• B)$140 million.
• C)$147 million.
• D)$125 million.

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Definitions:

Subversion

The act of undermining or attempting to overthrow an established system or government, often through covert means.

Inapplicable

Inapplicable refers to something that does not apply or cannot be applied in a specific situation or context.

Redefined

To give a new or different definition or interpretation to a concept, term, or phenomenon.

Notion

A conception or belief about something, often a perspective or theory.