Use the Information for the Question(s)below

question 68

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 initial value of MI's equity is closest to:

• A)$30 million.
• B)$15 million.
• C)$29 million.
• D)$24 million.

---

Definitions:

Emerging Markets

Denotes countries or regions experiencing rapid industrialization, economic growth, and increased investment, often characterized by volatile but high potential returns.

Internal Force

Psychologic or emotional factors within an individual that influence their behavior, motivation, and decision-making processes.

Increase In Working Hours

An expansion in the amount of time employees are required to work, potentially impacting productivity and well-being.

Incremental Change

Gradual adjustments made over time in processes, policies, or strategies, rather than significant transformations all at once.