1. add a capital arbitrage component to this question, assume 10% shareholder ownership

X 16. MM Proposition I Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company expects to earn $16 million before interest per year in perpetuity, with each company distributing all its earnings as dividends. Levered's perpetual debt has a market value of $60 million and costs 8 percent per year. Levered has 1.8 million shares of stock outstanding that sell for $101 per share. Unlevered has no debt and 3.4 million shares outstanding, currently worth $72 per share. Neither firm pays taxes. Is Levered's stock a better buy than Unlevered's stock? X 16. MM Proposition I Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company expects to earn $16 million before interest per year in perpetuity, with each company distributing all its earnings as dividends. Levered's perpetual debt has a market value of $60 million and costs 8 percent per year. Levered has 1.8 million shares of stock outstanding that sell for $101 per share. Unlevered has no debt and 3.4 million shares outstanding, currently worth $72 per share. Neither firm pays taxes. Is Levered's stock a better buy than Unlevered's stock