Suppose you own a company that is worth $190 under the capital structure of 70% equity and 30% debt. If under the capital structure of 50% equity and 50% debt your company can be worth $200, how much profit can you make? You can't win anything because other arbitrageurs will bid up to $200 the price of the previous claims. You can pocket an arbitrage profit of $10. You can get an infinite amount of arbitrage profit. He is fired due to his mismanagement.

Answer rating: 100% (QA)

To determine the profit that can be made we need to first calculate the total value of equity and de... View the full answer