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

question 37

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: Given the pay-offs of the project, what does the per cent chance of success need to be in order for the expected value of equity with the project to be equal to the expected value of equity without the project?

• A) 1/3
• B) 1/4
• C) 1/5
• D) 1/6

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Definitions:

Diagnostic Blood Test

Tests performed on a sample of blood to determine the presence of specific diseases, conditions, or in the monitoring of health.

Differential WBC Count

A test that measures the percentage of each type of white blood cell (WBC) present in the blood, aiding in the diagnosis of various conditions.

Immune Function

The complex activities carried out by the immune system to protect the body against infections, diseases, and foreign substances.

Monocytes

A type of white blood cell, part of the human body's immune system, that plays a role in defending the body against foreign substances.