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:

• A) 100
• B) 425
• C) 1650
• D) 825

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Definitions:

Glycogen

A multibranched polysaccharide of glucose that serves as a form of energy storage in animals and fungi.

Carbohydrates

Organic compounds made up of carbon, hydrogen, and oxygen atoms, serving as a major energy source for the body.

Steroids

A class of organic compounds with a characteristic molecular structure containing four rings of carbon atoms.

Lipids

Organic compounds that are fatty acids or their derivatives and are insoluble in water but soluble in organic solvents. They serve as energy sources and structural components in cells.