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28 Sep 2019
Monsters Incorporated (MI) is ready to launch a new product.Depending upon the success of this product, MI will have a value of$100 million, $150 million, or $191 million, with each outcomebeing equally likely. The cash flows are unrelated to the state ofthe economy and the cost of capital is equal to the risk-free rate,which is currently 5%. Assume that capital markets areperfect.
(a) The initial value of MIâs equity without leverage is closestto:
(1) $133 million
(2) $147 million
(3) $140 million
(4) $150 million
(b) Suppose that MI has zero-coupon debt with a $125 million facevalue due next year. The initial value of MIâs debt is closestto:
(1) $125 million
(2) $111 million
(3) $100 million
(4) $116 million
(c) Suppose that MI has zero-coupon debt with a $125 million facevalue due next year. The initial value of MIâs equity is closestto:
(1) $30 million
(2) $15 million
(3) $29 million
(4) $24 million
Monsters Incorporated (MI) is ready to launch a new product.Depending upon the success of this product, MI will have a value of$100 million, $150 million, or $191 million, with each outcomebeing equally likely. The cash flows are unrelated to the state ofthe economy and the cost of capital is equal to the risk-free rate,which is currently 5%. Assume that capital markets areperfect.
(a) The initial value of MIâs equity without leverage is closestto:
(1) $133 million
(2) $147 million
(3) $140 million
(4) $150 million
(b) Suppose that MI has zero-coupon debt with a $125 million facevalue due next year. The initial value of MIâs debt is closestto:
(1) $125 million
(2) $111 million
(3) $100 million
(4) $116 million
(c) Suppose that MI has zero-coupon debt with a $125 million facevalue due next year. The initial value of MIâs equity is closestto:
(1) $30 million
(2) $15 million
(3) $29 million
(4) $24 million
(a) The initial value of MIâs equity without leverage is closestto:
(1) $133 million
(2) $147 million
(3) $140 million
(4) $150 million
(b) Suppose that MI has zero-coupon debt with a $125 million facevalue due next year. The initial value of MIâs debt is closestto:
(1) $125 million
(2) $111 million
(3) $100 million
(4) $116 million
(c) Suppose that MI has zero-coupon debt with a $125 million facevalue due next year. The initial value of MIâs equity is closestto:
(1) $30 million
(2) $15 million
(3) $29 million
(4) $24 million
Jarrod RobelLv2
28 Sep 2019