Suppose

SigmaSigma

Industries and

Pi

Technology have identical assets that generate identical cash flows.

SigmaSigma

Industries is an all-equity firm, with

9

million shares outstanding that trade for a price of

$15.00

per share.

Pi

Technology has

20

million shares outstanding, as well as debt of

$40.50

million.

a. According to MM Proposition I, what is the stock price for

Pi

Technology?

b. Suppose

Pi

Technology stock currently trades for

$6.39

per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?

a. According to MM Proposition I, what is the stock price for Pi

Technology?

According to MM Proposition I, the stock price per share for

Pi

Technology is