Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of $5,000 on which it pays interest of 10% each year. Both companies have identical projects that generate free cash flows of $5,900 or $5,100 each year. After paying any interest on debt, both companies use all remaining free cash flows to pay dividends each year.

a. In the table below, fill in the debt payments for each firm and the dividend payments the equity holders of each firm will receive given each of the two possible levels of free cash flows.

b. Suppose you hold 10% of the equity of ABC. What is another portfolio you could hold that would provide the same cash flows?

ABC		XYZ
FCF	Debt Payments	Equity Dividends	Debt Payments	Equity Dividends
$5,900	$nothing	$nothing	$nothing	$nothing
$5,100	$nothing	$nothing	$nothing	$nothing

b. If you hold 10% of the equity of ABC, another portfolio you could hold that would provide the same cash flows would be:(Select from the drop-down menus and round to the nearest integer.)