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Please provide answers and show work, thank you very much! 9. Companies A and B differ only in their capital structure. A is financed 30%
Please provide answers and show work, thank you very much!
9. Companies A and B differ only in their capital structure. A is financed 30% debt and 70% equity; B is financed 10% debt and 90% equity. The debt of both companies is risk-free. a. Rosencrantz owns 1% of the common stock of A. What other investment package would produce identical cash flows for Rosencrantz? b. Guildenstern owns 2% of the common stock of B. What other investment package would produce identical cash flows for Guildenstern? c. Show that neither Rosencrantz nor Guildenstern would invest in the common stock of B if the total value of company A were less than that of BStep by Step Solution
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