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Identical assets that generate identical cash flows

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Reference no: EM13921671

Suppose Alpha Industries and Omega Technology has identical assets that generate identical cash flows. Alpha Industries is an all-equity firm, with 10 million shares outstanding that trade for a price of $22 per share. Omega Technology has 20 million shares outstanding as well as debt of $60 million.

a. According to MM Proposition I, what is the stock price for Omega Technology?

 

b. Suppose Omega Technology stock currently trades for $11 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?

Reference no: EM13921671

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