Use the Information for the Question(s) Below

question 79

Multiple Choice

Use the information for the question(s) below.
Consider two firms, Firm X and Firm Y, that have identical assets that generate identical cash flows. Firm Y is an all-equity firm, with 1 million shares outstanding that trade for a price of $24 per share. Firm X has 2 million shares outstanding and $12 million 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 Firm X. You have $5,000 of your own money to invest and you plan on buying Firm X 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 $5,000 investment in Firm Y stock. The number of shares of Firm X stock you purchased is closest to ________.

• A) 100
• B) 417
• C) 1,650
• D) 825

---

Definitions:

Prospective Competitive Advantage

The potential for a firm to achieve a future position where it outperforms rivals in efficiency, quality, innovation, or customer service.

Trade Dress Infringement

A legal violation that occurs when one company's product design or packaging is so similar to another's that it could confuse consumers.

False Advertising Claims

Legal accusations that involve the dissemination of misleading, deceptive, or false statements in advertising to promote the sale of goods or services.

Passing-Off Claims

Legal actions taken against individuals or companies that misrepresent their goods or services as those of another, causing confusion or deception.