Question
Suppose Beta Industries and Delta Technology have identical assets that generate identical cash flows. Beta Industries is an all-equity firm, with 6 million shares outstanding
Suppose Beta Industries and Delta Technology have identical assets that generate identical cash flows. Beta Industries is an all-equity firm, with 6 million shares outstanding that trade for a price of $18.00 per share. Delta Technology has 19 million shares outstanding, as well as debt of $32.40 million. a. According to MM Proposition I, what is the stock price for Delta Technology? b. Suppose Delta Technology stock currently trades for $10.71 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?
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