Shiraz plc is financed by 10m shares, whose current market value is £2.40 a share, and 10 per cent debentures with a nominal and market value of £14m. The return on the ordinary shares is 20 per cent.

Making Modigliani and Miller’s original assumptions (including that of no taxes), what would be the equity rate of return and the share price of an identical business that was all-equity financed?