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26-03-2020
Business

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Consider two firms, Firm X and Firm Y, that have identical assets that generate identical cash flows. Firm Y is an all-equity firm, with 1 million shares outstanding that trade for a price of $24 per share. Firm X has 2 million shares outstanding and $12 million in debt at an interest rate of 5%. Assume the M&M world with perfect capital markets. The stock price for Firm X is closest to ________.

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alizaybhatti43 alizaybhatti43

30-03-2020

Answer:

As per MM proposition total capital would remain same.

which implies share price = (24-12)/2= $6 per share

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