Consider two firms, With and Without, that have identical assets that generate identical cash flows. Without is an all-e

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Consider two firms, With and Without, that have identical assetsthat generate identical cash flows. Without is an all-equity firm,with 10 million shares outstanding that trade for a price of $8 pershare. With has 5 million shares outstanding and $20 million indebt at an interest rate of 5% p.a.
Assume Miller and Modigliani (MM) perfect capitalmarkets with no taxes and thatfirms and individuals can borrow and lend at the same 5% rate asWith.
(2 marks)
(1 mark)
(4 marks)
(1 mark)
[Total for Question 4: 8 marks]