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Firm X and Firm Y have identical assets that generate identical cash flows. Firm X is...

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Finance

Firm X and Firm Y have identical assets that generate identicalcash flows. Firm X is an unlevered firm, with 2.5 millionoutstanding shares and the market price of $20 per share. Firm Y isa levered firm, with 2 million outstanding shares and $15 milliondebt. The interest rate on the debt is 7%. According to MMProposition 1 without tax and bankruptcy costs, the stock price forFirm Y is closest to: $15.00 $16.25 $17.50 $19.75

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Firm X and Firm Y have identical assets that generate identicalcash flows. Firm X is an unlevered firm, with 2.5 millionoutstanding shares and the market price of $20 per share. Firm Y isa levered firm, with 2 million outstanding shares and $15 milliondebt. The interest rate on the debt is 7%. According to MMProposition 1 without tax and bankruptcy costs, the stock price forFirm Y is closest to: $15.00 $16.25 $17.50 $19.75

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