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4. (5 points) Eta Inc. is an all-equity firm, with 5 million shares outstand- ing that trade for a price of $10 per share. Gamma

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4. (5 points) Eta Inc. is an all-equity firm, with 5 million shares outstand- ing that trade for a price of $10 per share. Gamma Inc. has 10 million shares outstanding as well as debt of $20 million. Suppose Eta Inc. and Gamma Inc. have identical assets that generate identical free cash flows. (a) What is the stock price for Gamma Inc. according to Modigliani- Miller Proposition I? (b) Suppose Gamma Inc. stock currently trades for $1 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity

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