Suppose That UBM Corp

question 90

Multiple Choice

Suppose that UBM Corp. has invested $100 million in 8% risk-free bonds that mature in one-year. The firm also has $80 million in debt outstanding that will also mature in a year. UBM stockholders are considering selling the $100 million in debt and investing in a project that has a 60% chance of returning $200 million and a 40% chance of returning $2 million. What is the expected value of the equity if the stockholders sell the debt?

• A) $175 million
• B) $97.5 million
• C) $51 million
• D) $40 million

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