Problem 2 (15%) Suppose there are two firms, each The firms are identical except fort market value of $990. The other two firms, each with date 1 cash flows of $1400 or $900 as below: except for their capital structure. One firm is unlevered, and its co. 90. The other firm has borrowed $500, and its equity has a market value of se (1) Does MM Proposition I hold? W leverage? (10%) ed, and its equity has a ity has a market value of $510 roposition I hold? What arbitrage opportunity is available using homemade (2) Explain when/how plain when/how arbitrage opportunity is gone and MM Proposition I holds. (5%)