2. There are two identical companies, U and L, except that U is financed entirely through common equity and L has $100,000 in debt at an interest rate of 16%. Both companies achieve annual net operating earnings of $45,000. Assume perfect markets and information, with no taxes and no bankruptcy costs. If the market capitalizes firm U at a rate of 10%, and the total market value of L is $500,000, is there an arbitrage opportunity available, and if so, what is the net gain? (Medium, 10 marks, 15 mins)