Consider two firms, L and U, that have identical assets that generate identical cash ?ows

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Consider two firms, L and U, that have identical assets that generate identical cash ?ows. Firm U is an all–equity ?rm, with 1 million shares outstanding that trade for a price of $24 per share. Firm L has 2 million shares outstanding and $12 million dollars in debt at an interest rate of 5%. Assume that M&M’s perfect capital market conditions are met and that you can borrow and lend at the same 5% rate as ?rm L. You have $5000 of your own money to invest and you plan on buying ?rm U’s stock. In the following you are interested in using homemade leverage.

1. Determine how much do you need to borrow so that the payo? of your purchase of ?rm U’s stock will be the same as a $5000 investment in ?rm L’s stock?