Use the Following Information to Answer the Question(s)below

question 95

Multiple Choice

Use the following information to answer the question(s) below.
If managed effectively,Rearden Metal will have assets with a market value of $200 million,$300 million,or $400 million next year,with each outcome being equally likely.Managers,however,may decide to engage in wasteful empire building,which will reduce Rearden's market value by $20 million in all cases.Managers may also increase the risk of the firm,changing the probability of each outcome to 50%,5%,and 45% respectively.
-Suppose that the managers at Rearden Metal will increase risk to maximize the expected payoff to equity holders.If Rearden has $180 million in debt due in one year,then the expected value of Rearden's assets is closest to:

• A)$280 million.
• B)$295 million.
• C)$300 million.
• D)$900 million.

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Definitions:

Parallel Circuit

An electrical circuit where components are connected across common points or junctions, providing multiple paths for current.

Inductive Reactance

The resistance to the change in current flow by an inductor in an AC circuit, measured in ohms and dependent on frequency.

Inductive Reactance

Inductive reactance is the opposition to the change in current flow by an inductor, and it increases with an increase in the frequency of the applied electric signal.

Parallel Circuit

An electrical circuit configuration where multiple paths are available for current flow, resulting in each component having the same voltage applied.