QUESTION 1: The King Inc and the Prince Limited are identical in every aspect, except that King is an all equity firm. The market value of Prince's 6% bonds is $1,000,000. All earnings are perpetual with no corporate taxes and all earnings are distributed to the equity holders. King Prince EBIT $400,000 $400.000 Cost of Equity 10% Market Value of Debt NA $1,000,000 Cost of Debt NA 6% Outstanding Shares 400,000 100.000 Current Market Price $36 a. Melissa Chow who owns 10% of Prince's equity can borrow at 5% interest rate per year. Can she increase her $ return by purchasing 10% of King's equity if she borrows so that her net investment (total investment -borrowed amount) under two strategies is the same? b. At what interest rate investing in King will not be attractive to Melissa anymore? c. At what debt level investing in Prince will be more attractive to Melissa