Assume that 1 all of the mm assumptions are met 2 both, Finance Basics

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Assume that 1 all of the mm assumptions are met 2 both

Companies U and L are identical is every respect except that U is unlevered while L has $10 million of 5% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) both firms are subject to a 40% federal-plus-state corporate tax rate, (3) EBIT is $2 million and (4) the unlevered cost of equity is 10%

a) What value would MM now estimate for each firm
b) What is the return rate for U and L
c) What is the WACC for both firms

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Finance Basics: Assume that 1 all of the mm assumptions are met 2 both

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Finance Basics: Assume that 1 all of the mm assumptions are met 2 both

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