Q3. Give a critical appraisal of Modigliani and Miller Approach to the theory of capital structure. The two companies U and L belong to the same risk class. They have everything in common except that firm L has 12% debentures of Rs. 10,00,000. The following information about the two firms is available to you: Firm U Rs. 4,00,000 Firm L Rs. 4,00,000 Particulars Net operating income(EBIT) 12% Debentures Equity capitalization rate(ke) Rs. 10,00,000 0.16 0.15 Calculate the value of two firms and explain how under Modigliani - Miller approach an investor who owns 10% equity shares of the overvalued firm will be better off switching his holdings to the other firm. Also explain when arbitrage process will come to an end