EBK CORPORATE FINANCE
4th Edition
ISBN: 9780134202785
Author: DeMarzo
Publisher: VST
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Textbook Question
Chapter 14, Problem 6P
Suppose Alpha Industries and Omega Technology have identical assets that generate identical cash flows. Alpha Industries is an all-equity firm, with 10 million shares outstanding that trade for a price of $22 per share. Omega Technology has 20 million shares outstanding as well as debt of $60 million.
- a. According to MM Proposition I, what is the stock price for Omega Technology?
- b. Suppose Omega Technology stock currently trades for $11 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?
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Suppose Beta Industries and Delta Technology have identical assets that generate identical cash flows. Beta Industries is an all-equity firm, with 7 million shares outstanding that trade for a price of
$16.00 per share. Delta Technology has 22 million shares outstanding, as well as debt of $33.60 million.
a. According to MM Proposition I, what is the stock price for Delta Technology?
b. Suppose Delta Technology stock currently trades for $8.27 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 Delta Technology?
According to MM Proposition I, the stock price per share for Delta Technology is $
(Round to the nearest cent.)
Suppose Summa Industries and Cumma Technology have identical assets that generate identical cash flows.
Summa Industries is an all-equity firm, with 12 million shares outstanding that trade for a price of $16.00 per share.
Cumma Technology has 18 million shares outstanding, as well as debt of $57.60 million.
a. According to MM Proposition I, what is the stock price for Cumma Technology?
b. Suppose Cumma Technology stock currently trades for $10.74 per share. What arbitrage opportunity is available?
What assumptions are necessary to exploit this opportunity?
Suppose Alpha Industries and Omega Technology have identical assets that generate identical cash flows. Alpha Industries is an all-equity firm, with 10 million shares outstanding that trade for a price of $22.00 per share. Omega Technology has
20 million shares outstanding, as well as debt of $60.00 million.
a. According to MM Proposition I, what is the stock price for Omega Technology?
b. Suppose Omega Technology stock currently trades for $11.00 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 Omega Technology?
According to MM Proposition I, the stock price per share for Omega Technology is $
(Round to the nearest cent.)
b. Suppose Omega Technology stock currently trades for $11.00 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?
If Omega Technology stock currently trades for $11.00 per share,…
Chapter 14 Solutions
EBK CORPORATE FINANCE
Ch. 14.1 - How does the risk and cost of capital of levered...Ch. 14.2 - Why are investors indifferent to the firms capital...Ch. 14.2 - What is a market value balance sheet?Ch. 14.2 - In a perfect capital market, how will a firms...Ch. 14.3 - How do we compute the weighted average cost of...Ch. 14.3 - With perfect capital markets, as a firm increases...Ch. 14.4 - If a change in leverage raises a firm's earnings...Ch. 14.4 - True or False: When a firm issues equity, it...Ch. 14.5 - Consider the questions facing Dan Harris, CFO of...Ch. 14.5 - Prob. 2CC
Ch. 14 - Consider a project with free cash flows in one...Ch. 14 - You are an entrepreneur starting a biotechnology...Ch. 14 - Acort Industries owns assets that will have an 80%...Ch. 14 - Wolfrum Technology (WT) has no debt. Its assets...Ch. 14 - Suppose there are no taxes. Firm ABC has no debt,...Ch. 14 - Suppose Alpha Industries and Omega Technology have...Ch. 14 - Prob. 7PCh. 14 - Prob. 8PCh. 14 - Zetatron is an all-equity firm with 100 million...Ch. 14 - Explain what is wrong with the following argument:...Ch. 14 - Consider the entrepreneur described in Section...Ch. 14 - Hardmon Enterprises is currently an all-equity...Ch. 14 - Suppose Visa Inc. (V) has no debt and an equity...Ch. 14 - Prob. 14PCh. 14 - Prob. 15PCh. 14 - Hartford Mining has 50 million shares that are...Ch. 14 - Mercer Corp. has 10 million shares outstanding and...Ch. 14 - In mid-2015 Qualcomm Inc. had 11 billion in debt,...Ch. 14 - Prob. 19PCh. 14 - Prob. 20PCh. 14 - Yerba Industries is an all-equity firm whose stock...Ch. 14 - Prob. 22PCh. 14 - Prob. 23PCh. 14 - Prob. 24P
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