Question
Suppose Summa Summa Industries and Cumma Cumma Technology have identical assets that generate identical cash flows. Summa Summa Industries is anall-equity firm, with 12 million
Suppose Summa Summa Industries and Cumma Cumma Technology have identical assets that generate identical cash flows. Summa Summa Industries is anall-equity firm, with 12 million shares outstanding that trade for a price of $ 20.00
Cumma Technology has 24 million sharesoutstanding, as well as debt of $ 72.00 million.
a. According to MM PropositionI, what is the stock price for Cumma Technology?
b. Suppose Cumma Technology stock currently trades for $ 14.71
per share. What arbitrage opportunity isavailable? What assumptions are necessary to exploit thisopportunity?
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Personal Finance
Authors: Jeff Madura, Hardeep Singh Gill
3rd Canadian Edition
978-0133035575, 133035573, 978-0133970524, 133970523, 978-0134040042
