Companies u and l are identical in every respect except, Financial Management

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Companies u and l are identical in every respect except

Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 5.9% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) there are no corporate or personal taxes, (3) EBIT is $2.1 million, and (4) the cost of equity to Company U is 8.3%.

What is the required percentage rate of return of equity for Company L?

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Financial Management: Companies u and l are identical in every respect except

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Financial Management: Companies u and l are identical in every respect except

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