Question
M&M Proposition II (No Taxes) You have $60,000 and are looking to invest. Both Alpha and Beta have caught your eye. Both firms have EBIT
M&M Proposition II (No Taxes)
You have $60,000 and are looking to invest. Both Alpha and Beta have caught your eye. Both firms have EBIT of $100,000 in perpetuity and both pay out all their earnings as dividends. There's a 0% corporate tax rate. Use the company facts from the previous problems when needed:
1)What return on equity would you expect to receive if you were to buy Alpha Tech shares with your $60,000?
2)What return on equity would you expect to receive if you were to buy Beta Corp shares with your $60,000? (Assume that Beta has perpetual debt).
3)Which return is higher and why?
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