Example $2$

Financial companies A and B will always return exactly the same profit $($let$\text{'}$s say

assuming profit growth is $>0)$ but company B has $10$ times lower equity

than A $($equity requirement will always be lower for B$).$ You are asked to estimate the value of the companies. The companies pay exactly the same dividend

the forecast period and the rate of return are the same for both companies. Which

statement is correct?

a$)$ Company A is more valuable than Company B

b$)$ Company B is more valuable than Company A

c$)$ The companies are equally valuable, since they have exactly the same

cash flow and WACC

d$)$ Need more information

e$)$ None of the above is correct