Arbitrage Analysis (M-M Hypothesis), Theory of capital structure. скачать в хорошем качестве

Arbitrage Analysis (M-M Hypothesis), Theory of capital structure.

Financial Management + Investment Analysis & Portfolio Management: For B.B.A 3rd Year Accounting and B.B.A Final year Accounting and Management Department. ###The two companies , U and L , belong to an equivalent risk class. There two firms are identifiable in every respect that U company is unlevered while L company has 10% debt of tk.40 lakh. The other relevant information regarding their valuation and capitalization rates are as follws. Details Firm U Firm L Net operating income( EBIT) 6,50,000 6,50,000 Interest ------ 4,00,000 Earning to equity holders (NI) 6,50,000 2,50,000 Equity capitalization rate 0.15 0.20 Market value of equity (S) 50,00,000 12,50,000 Market value of debt ------- 40,00,000 Total value of firm (S+B) 50,00,000 52,50,000 Overall capitalization rate(Ko) 0.15 0.143 Debt equity ratio(B/S) 0 1.33 Required: i) An investor own 20% equity share of L company .Show the arbitrage process and the amount by which he could reduce his outlay through the use of leverage. ii) According to M-M hypothesis when will this arbitrage process come to end. #arbitrageanalysis #arbitrageprocess