Consider two firms that are identical in every aspect except: a) Company NL: no financial leverage b) Company L: 50,000

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answerhappygod
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Consider two firms that are identical in every aspect except: a) Company NL: no financial leverage b) Company L: 50,000

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Consider two firms that are identical in every aspect except:
a) Company NL: no financial leverage
b) Company L: 50,000 of 10% debt
c) Market value of debt equals its par value
d) Require rate of return equity: for company NL is 15%; for company L is 25%
e) NOI is 15,000 for both company
1). Please find total value of each company.
2). suppose you own 1% of NL, how much arbitrage profit can you earn?
3). Show the cash flow before and after the arbitrage
Before the arbitrage:
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