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Consider two firms A and B that are identical in all respects except capital structure. Firm A has $100 millionin equity outstanding and $40 million
Consider two firms A and B that are identical in all respects except capital structure. Firm A has $100 millionin equity outstanding and $40 million in bonds outstanding. Firm B has $140 million in equity outstanding and $0 million in bonds outstanding. There are no taxes.
(A). Suppose an investor has a $5 million investment in the stock of firm A. What alternative $5 million investment that includes firm B
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