Use the Information for the Question(s)below

question 64

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.
-Assume that in the event of default,20% of the value of MI's assets will be lost in bankruptcy costs.Suppose that at the start of the year,MI has no debt outstanding,but has 5.6 million shares of stock outstanding.If MI does not issue debt,its share price is closest to:

• A)$5.15.
• B)$23.75.
• C)$23.90.
• D)$25.00.

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Definitions:

Postconventional

A stage of moral development wherein individuals' ethics are governed by internal principles, and they understand that laws and rules may not always be just.

Conventional

Adhering to established norms, standards, or traditions, often seen as typical or traditional.

Preconventional

A level in Kohlberg's stages of moral development where moral reasoning is based on external consequences and individual needs.

Idealists

Individuals who prioritize ideals and principles over practical considerations, often aiming for perfection in various aspects of life.