The earnings of firms X and Y are identically distributed (they are the same firm except for capital structure). Other facts are:

The cost of the debt is 0.10.
a. Assume that you are going to invest $1,000,000 in one of the firms. What would be your investment plan if you want your strategy to dominate the alternative of investing in the equity of the other firm?
b. Explain why your plan is desirable.

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Debt Common stock Market Values Firm X $0 110,000,000 Firm Y $75,000,000 25,000,000