Suppose you own a firm that is worth $190 under the capital structure of 70% equity and 30% debt. If under the capital structure of 50% equity and 50% debt your firm can be worth $200, how much profit you can make? You can't earn anything because other arbitrageurs will bid up the price of the old claims to $200 You can pocket an arbitrage profit of $10 You can make an infinite amount of arbitrage profit You get fired because of your bad management