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Consider two companies. A and B. which are equivalent except for their capital structure. Both have $10000 of assets and earn a rate of return
Consider two companies. A and B. which are equivalent except for their capital structure. Both have $10000 of assets and earn a rate of return of 14 percent on those assets. Company A has $3000 of debt whereas Company B has $1000 of debt. The cost of debt for both companies is 10 percent. Both have 100 shares of stock outstanding. Mr. X owns 1 share of Company A stock that has an expected return of 17.1 percent. Show how Mr. X could create an investment equivalent to 1 share of A from investing instead hi Company B
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