What arbitrage opportunity is available

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XY company and ZY Corp. are two firms in the retail sector that have identical assets and generate identical cash flows. XY company is an all-equity firm, with 20 million shares outstanding that trade for a price of $22 per share. ZY Corp. has 40 million shares outstanding as well as debt of $200 million.

-According to MM Proposition I, what is the stock price for ZY Corp? Explain your steps.

-Suppose ZYCorp. stock currently trades for $11 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?

Reference no: EM132769684

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