Suppose Alpha Industries and Omega Technology have identical assets that generate identical cash flows.

Alpha Industries is an all-equity firm, with 10 million shares outstanding that trade for a price of $ 22.00

per share.

Omega Technology has 20 million shares outstanding, as well as debt of $60.00 million.

1. According to MM Proposition I, the stock price per share for Omega Technology is $__________

1. If Omega Technology stock currently trades for $11.00 per share, an example of an arbitrage opportunity that exists today which requires no future cash flow obligations would be:

Sell (10/20) million shares of (Alpha/Omega) at the current price of $________and buy (10/20) million shares of (Alpha/Omega) at the current price of $_____ and borrow $________ million

1. The assumptions necessary to exploit this opportunity are: (Select the best choice below.)

A.

Trading can be done at current prices.

B.

No taxes or transactions costs.

C.

You can borrow at the same terms as the leveraged firm.

D.

All of the above.