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Omega Inc. is an all-equity firm, with 10 million shares outstanding that trade for a price of $20 per share. Alpha Inc. has 20 million
Omega Inc. is an all-equity firm, with 10 million shares outstanding that trade for a price of $20 per share. Alpha Inc. has 20 million shares outstanding as well as debt of $40 million. Suppose Omega Inc. and Alpha Inc. have identical assets that generate identical free cash flows. a. What is the stock price for Alpha Inc. according to Modigliani-Miller PropositionI? b. Suppose Alpha Inc. stock currently trades for $2 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?
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