Use the Information for the Question(s)below

question 30

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.
-Assuming that in the event of default,20% of the value of MI's assets will be lost in bankruptcy costs,the initial value of MI's equity without leverage is closest to:

• A)$150 million.
• B)$147 million.
• C)$140 million.
• D)$133 million.

---

Definitions:

Organizers

Individuals or tools that arrange, coordinate, or manage various tasks or events.

Object Relations

A theory in psychoanalysis that focuses on the importance of early family relationships and the roles of internalized images of these relationships in personality development.

Caregivers

Individuals who provide care for another person in need, such as children, elderly, or someone with disabilities, often involving physical, emotional, or financial support.

Abnormal Development

Deviations from typical growth patterns, which can affect physical, emotional, or intellectual development.