Prove MM1: Both Umbrella Inc. and Prixxa Inc. produce $300,000 of cash flow each year. Umbrella has no debt outstanding, and its cost of equity capital is 14 percent. But Prixxa has 1,000,000 depts at a rate of 8 percent per year. If we assume that the debt will be perpetual, find the cost of equity capital for Umbrella Inc. and Prixxa Inc. Assume that Modigliani and Miller Proposition 1 holds.

Answer rating: 100% (QA)

According to Modigliani and Miller Proposition 1 MM1 in a world ... View the full answer