Assume that all participants in the following have an interest rate or discount rate of 10%. A firm could either finance an operation by selling 1% of a constant stream of income of $50 million per year forever (an equity exchange) or by selling a 5 year bond with a 15% coupon rate and a face value of $3 million. a. What is the present value of the equity? b. What is the present value of the bond?

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