The WHAT Company and the WHY Company are identical in every respect except

that WHAT is not levered. The market value of WHY Company's 6% bonds is $1

million. Financial information for the two firms appears here. All earnings streams

are perpetuities. Neither firm pays taxes. Both firms distribute all earnings

available to common shareholders immediately.

WHAT WHY

Projected Operating Income $300,000 $300,000

Year-end Interest on Debt --- $60,000

Market Value of Stock $2,400,000 $1,714,000

Market Value of Debt --- $1,000,000

(b) An investor who can borrow at 6% per year wishes to purchase 5% of WHY's

equity. Can he increase his dollar return by purchasing 5% of WHAT's equity if

he borrows so that the initial net costs of the two strategies are the same? (13

marks)

I don't understand what b is asking for.