b) Two companies listed at NSE are in the same risk class, Company Tanya is...
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b) Two companies listed at NSE are in the same risk class, Company Tanya is all equity financed while company Tanisha financed by both debt and equity, each company earns Sh.2Million profit from operations and all earnings are paid out as dividends. The values for the two companies are given below Currently the value of Tanisha is overstated. Sonko who holds 10% of Tanisha (Levered) wishes to sell his holding and switch to Tanya (Unlevered) Company. Required I. Demonstrate the arbitrage process to bring the market to equilibrium (4 Marks) II. What is the current income of the investor? and what would be his future income after switching (4 Marks)
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