Financial Management: Principles and Applications, 13/e

Long description

Investment in Firm B
Value of Firm B's equity	$45.00 million
Amount invested	7.50 million
Price of 10% of Firm B's shares	4.50 million
Amount invested in risk-free debt	3.00 million

State of the Economy ($ millions)	Cash Flow	Firm A Equity	Firm B                        Debt      +          Equity =	Total
Recession	$50	$5	$3.15               $0.80	$3.95
Normal	100	$10	$3.15               $5.80	$8.95
Boom	150	$15	$3.15               $10.80	$13.95

The text, Cash flows from investing in Firm B are less than from investing in Firm A because Firm B’s equity is overpriced points to the Total column.