Please answer the question in the pic.

Capital Structure I 1. Suppose two companies X and Z have exactly the same Operating characteristics and their business risks are perfectly correlated (i.e., exactly the same cashows). They differ only in the way they nance their operations. Both companies will be liquidated exactly one year from now and shareholders will receive a liquidating dividend at the end of the year. Company X is expected to pay a liquidating dividend of $55 million, but this is uncertain, so shareholders discount this dividend at a rate of 10%. Z has issued bond to nance its Operations. Currently Z's securities are trading as follows: Bonds $10 million Shares $42 million The bonds are AAA rated and the expected return is the same as on the risk free asset which is 5%. (a) Suppose company X has 2,500,000 shares outstanding. What is the current share price of X? (b) What is the total valuation of company Z's assets today? 1 (c) Show how you can set up an arbitrage portfolio in order to benet from any miSpI'icing of companies X and Z relative to each other