Use the Information for the Question(s)below

question 13

Essay

Use the information for the question(s)below.
Consider two firms: firm Without has no debt,and firm With has debt of $10,000 on which it pays interest of 5% per year.Both companies have identical projects that generate free cash flows of $1000 or $2000 each year.Suppose that there are no taxes,and after paying any interest on debt,both companies use all remaining free cash flows to pay dividends each year.
-Suppose you own 10% of the equity of Without.What is another portfolio you could hold that would provide you with the same cash flows?

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Definitions:

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A philosopher, economist, and revolutionary socialist from the 19th century recognized for his insights on capitalism and communism.

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