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Company UN and L are identical with one exception. Company UN is financed entirely by equity, and the equity is worth $1,000,000. Company L is
Company UN and L are identical with one exception. Company UN is financed entirely by equity, and the equity is worth $1,000,000. Company L is financed 50% by equity and 50% by debt; the equity is worth $500,000 and the debt is worth $500,000. As the companies are identical, the assets of each company are worth $1,000,000. During a recession, Company UN's equity and assets drop in value to $800,000. Company L's assets drop in
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