6. Suppose Alpha Industries and Omega Technology have identical assets that generate identical cash flows. Alpha Industries is an all-equity firm, with 10 million shares outstanding that trade for a price of $22 per share. Omega Technology has 20 million shares outstanding as well as debt of $60 million.
a. According to MM Proposition I, what is the stock price for Omega Technology?
b. Suppose Omega Technology stock currently trades for $11 per share. What arbitrage opportunity is available? What assumptions are necessary to exploit this opportunity?
13. Suppose The Washington Post Company (WPO) has no debt and an equity cost of capital of 9.2%. The average debt-to-value ratio for the publishing industry is 13%. What would its cost of equity be if it took on the average amount of debt for its industry at a cost of debt of 6%?
21. Petron Corporation's management team is meeting to decide on a new corporate strategy. There are four options, each with a different probability of success and total firm value in the event of success, as shown below:
                                                               Strategy
                                                            A    B    C    D
Probability of Success                      100% 80% 60% 40%
Firm Value if Successful (in $ million) 50 60 70    80
Assume that for each strategy, firm value is zero in the event of failure.
a. Which strategy has the highest expected payoff?

Payout Versus Retention of Cash
21. Clovix Corporation has $50 million in cash, 10 million shares outstanding, and a current share price of $30. Clovix is deciding whether to use the $50 million to pay an immediate special dividend of $5 per share, or to retain and invest it at the risk-free rate of 10% and use the $5 million in interest earned to increase its regular annual dividend of $0.50 per share. Assume perfect capital markets.
a. Suppose Clovix pays the special dividend. How can a shareholder who would prefer an increase in the regular dividend create it on her own?
b. Suppose Clovix increases its regular dividend. How can a shareholder who would prefer the special dividend create it on her own?
31. Berkshire Hathaway's A shares are trading at $120,000. What split ratio would it need to bring its stock price down to $50?

6. Suppose Alpha Industries and Omega Technology have identical ass...