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Question 1: (2.5 credits) In a world of Modigliani and Miller (1958), there are two firms, A and B, where A is unlevered firm (which

Question 1: (2.5 credits)

In a world of Modigliani and Miller (1958), there are two firms, A and B, where A is unlevered firm

(which means raising funds only through equity) and B is levered (raising funds both through equity and

debt). The value of firm A thus equals to the value of firm A's equity:

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