Question

Two firms L and U are identical in all respects except that firm L has 10% Rs
6,00,000 debentures. The EBIT of both the forms are Rs 2,00,000. The cost of equity of L is
28% and that of U is 20%. If Mr. X holds 10% shares of the overvalued form, show the
arbitrage process with
a. same income & less investment and
b. more income & same (entire) investment.

Answer 1

a )is the correct answer in this option