What the stock price for alpha is closest to

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Consider two firms, Alpha and Gamma that have identical assets that generate identical cash flows. Gamma is an all-equity firm, with 1 million shares outstanding that trade at a price of $28 per share. Alpha has 2 million shares outstanding and $10 million of debt at an interest rate of 5%.

Problem 1: According to M&M Proposition I, the stock price for Alpha is closest to:

a) $6

b) $7

c) $8

d) $9

e) $19

Reference no: EM132755980

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