a. According to MM Proposition​ I, what is the stock price for Pi ​Technology? b. Suppose Pi Technology stock currently trades for $12.68 per share. What arbitrage opportunity is​ available? What assumptions are necessary to exploit this​ opportunity?

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter15: Distributions To Shareholders: Dividends And Repurchases
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Problem 6MC: Suppose IWT has decided to distribute $50 million, which it presently is holding in liquid...
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Suppose
Sigma
Industries and
Pi
Technology have identical assets that generate identical cash flows.
Sigma
Industries is an​ all-equity firm, with
9
million shares outstanding that trade for a price of
$18.00
per share.
Pi
Technology has
24
million shares​ outstanding, as well as debt of
$48.60
million.
a. According to MM Proposition​ I, what is the stock price for
Pi
​Technology?
b. Suppose
Pi
Technology stock currently trades for
$12.68
per share. What arbitrage opportunity is​ available? What assumptions are necessary to exploit this​ opportunity?
 
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