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suppose a firm is financed entirely with equity and the current market value of its assets and equity is Vu = Eu = 100. As
suppose a firm is financed entirely with equity and the current market value of its assets and equity is Vu = Eu = 100. As an arbitrageur you know that if the firm was capitalized with 50 percent debt, the market values of the debt and equity of this levered levered version of the firm would be EL = 60 and DL = 50, respectively. What would you do?
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