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