Consider two firms: firm Without has no debt, and firm With has debt of $10,000 on which it pays interest of 5% per year. Both companies have identical projects that generate free cash fows from assets of $1000 or $2000 each year. Suppose that there are no taxes, and after paying any interest on debt, both companies use all remaining free cash fows to pay dividends each year. Suppose you own 10% of the equity of Without.

a) What is another portfolio (that includes With's shares) that you could hold and that would provide you with the same exact cash fows? [5 Points]

b) Show that the two portfolios would give the same payoff. [5 Points]