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

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Definitions:

Hydrophilic End

The part of a molecule that is attracted to water, allowing it to dissolve or interact favorably with water molecules.

Condensation Reaction

A reaction in which two monomers are combined covalently through the removal of the equivalent of a water molecule; also called condensation synthesis. Compare with hydrolysis reaction.

Polymer

Large molecules composed of repeated subunits, which may be identical or different, known as monomers.

Dimer

An association of two monomers (e.g., a disaccharide or a dipeptide).