Suppose That USB Corp Has $100m Invested in 8% Risk-Free

question 9

Multiple Choice

Suppose that USB Corp has $100m invested in 8% risk-free bonds that mature in one-year. The company also has $80m in debt outstanding that will also mature in a year. USB shareholders are considering selling the $100m in debt and investing in a project that has a 60% chance of returning $200m and a 40% chance of returning $2m. Agency costs: What will the equity value of USB be in one-year without shareholders taking on the project?

• A) $100m
• B) $80m
• C) $20m
• D) $8m

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Definitions:

Imaginative Experiences

Engagements or activities that encourage creativity and invention, often allowing individuals to explore new ideas or worlds.

Power

The ability or capacity to do something or act in a particular way, often implying the control or influence over others.

Frivolity

A lack of seriousness or sense of importance, often characterized by trivial or lighthearted behavior or content.

Fun

Fun is a feeling of enjoyment, amusement, or light-hearted pleasure experienced during activities or moments.