New world corp and old world corp are identical in all

Reference no: EM13618292

New World Corp. and Old World Corp. are identical in all respects except capital structure. New World's bonds have a market value of $200 million while Old World's bonds have a market value of $500 million. These firms operate in a perfect world where markets are perfectly efficient and there are no taxes or financial distress/bankruptcy costs. Both firms have 10 million shares outstanding. If the stock price for New World is $120, what do you predict for the stock price of Old World?

Reference no: EM13618292

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