If an investor buys "a" proportion of an unlevered firm's (firm U) equity then his/her payoff is:
A) (a) * (profits)
B) (a) * (interest)
C) (a) * (profits - interest)
D) none of the above

Question

Quizplus · Accepted Answer

An unlevered firm has no debt, so its profits are not reduced by interest payments. Therefore, the investor's payoff is simply their proportion of the firm's total profits.

If an Investor Buys "A" Proportion of an Unlevered Firm's