U and L are two firms with the same EBIT of $100,000. They are identical in every
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Question:
Assume that an investor has 20% of shares (equity) of the firm L and MM assumptions hold. That is, you will be able to borrow or lend at the same rate as the firms can (5%). How much would the arbitrage profit (surplus) be for that investor who owns 20% of equity of the firm L and plans to create that arbitrage by switching to firm U?
Related Book For
Intermediate Financial Management
ISBN: 9780357516669
14th Edition
Authors: Eugene F Brigham, Phillip R Daves
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