Use the Information for the Question(s)below

question 76

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.
-Assume that in the event of default,20% of the value of MI's assets will be lost in bankruptcy costs and suppose that MI has zero-coupon debt with a $125 million face value due next year.The total value of MI with leverage is closest to:

• A)$140 million.
• B)$100 million.
• C)$125 million.
• D)$134 million.

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Definitions:

Edema

Swelling caused by excess fluid trapped in the body's tissues, often resulting from inflammation, injury, or medical conditions.

Thoracic Duct

The largest lymphatic vessel in the body, it transports lymph and chyle from the lymphatic system into the circulatory system.

Subclavian Vein

A major vein located under the collarbone that receives blood from the arm and parts of the neck and chest.

Lymph Drainage

The process by which the lymphatic system collects and removes bodily wastes and excess fluids from tissues.