Use the Information for the Question(s)below

question 65

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 expected return of MI's debt is closest to:

• A)25.0%.
• B)12.5%.
• C)5.0%.
• D)7.8%.

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Definitions:

Environment

The sum of all external conditions affecting the life, development, and survival of an organism.

Vegetarianism

A dietary lifestyle that excludes meat, fish, and poultry, sometimes for health, environmental, or ethical reasons.

Compassion

A deep awareness of and sympathy for another's suffering, coupled with the desire to alleviate that suffering.

Animals

Multicellular, eukaryotic organisms of the kingdom Animalia that can move voluntarily and consume organic material.