Clayton Ltd. is debt-free with assets projected to be $900 million in a strong economy and $300 million in a weak economy next year, each with equal likelihood. Presently, the market values its assets at $500 million. Assuming a risk-free interest rate of 4%, if the company borrows a 1-year debt of $100 million at this rate and distributes it as an immediate cash dividend, then according to Modigliani-Miller theory, the expected return of the firm's stock just after the dividend is paid would be closest to: 

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A classic problem in finance To solve this problem we need to apply the ModiglianiMiller MM theory w... View the full answer