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Use the Information for the Question(s) Below

question 7

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 dollars 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 you invest enough at the risk-free rate so that the payoff of your account will be the same as a $5000 investment in Without stock? The number of shares of With stock you purchased is closest to:

Definitions:

Incremental Cash Flows

The additional cash flow from taking on a new project, considered essential for analysis in capital budgeting.

Sunk Costs

Costs that have already been incurred and cannot be recovered or altered, not affecting future business decisions.

Capital Budgeting

Capital budgeting is the process by which a business evaluates and selects long-term investments based on their potential to generate profitable returns over time.

After Tax Cash Flow

The amount of cash that a business or individual has available after all tax obligations have been paid, indicating the net cash generated or used over a period.