Use the Information for the Question(s)below

question 24

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 With.What is another portfolio you could hold that would provide you with the same cash flows?

---

Definitions:

External Theories

Ideas or explanations originating outside an organization or individual, used to understand phenomena or guide actions in various domains.

Motivation

The process of arousing and sustaining goal-directed behavior.

Adams's Theory

Refers to the Equity Theory of motivation created by John Stacey Adams, which suggests that employees are motivated or demotivated based on their perception of fairness in the workplace.

Inequity

A state of unfairness or injustice where there is an imbalance or disproportionality in the distribution of resources or opportunities among individuals or groups.