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a. Fill in the table below showing the payments debt and equity holders of each firm will receive given each of the two possible levels of free cash flows. b. Suppose you hold 10% of the equity of ABC. What is another portfolio you could hold that would provide the same cash flows? c. Suppose you hold 10% of the equity of XYZ. If you can borrow at 10%, what is an alternative strategy that would provide the same cash flows? Debt ABC Debt XYZ Interest rate $0 $5,000 10% a. Fill in the table below showing the payments debt and equity holders of each firm will receive given each of the two possible levels of free cash flows. ABC Debt Equity Payments Dividends XYZ Debt Equity Payments Dividends FCF $800 $1,000 b. Suppose you hold 10% of the equity of ABC. What is another portfolio you could hold that would provide the same cash flows? Ownership 10% FCF=$800 FCF=$1,000 or of debt and Equity in ABC would provide cash flows of Cash flows could be replicated by owning The debt cash flows would be The equity cash flows would be For total cash flows of or per year of equity of XYZ per year per year per year, as you would get from buying ABC equity or or c. Suppose you hold 10% of the equity of XYZ. If you can borrow at 10%, what is an alternative strategy that would provide the same cash flows? Ownership 10% FCF=$800 FCF=$1,000 or and buying Equity in XYZ would provide cash flows of Cash flows could be replicated by borrowing You would receive dividends of You would pay interest of Your total cash flow would be or per year of the equity of ABC per year in another case per year, as you would get from buying XYZ equity in one case or

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