Consider two firms alpha and omega that are identical, Financial Management

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Consider two firms alpha and omega that are identical

Consider two firms Alpha and Omega that are identical except for capital structure. Each firm expects EBIT of $840,000 each year forever. Alpha has a cost of equity of 12% and firm Omega has $2.0 million in perpetual debt with a coupon rate of 10%. Assume Case I –no tax

What is the value of each firm and what is the cost of capital for each firm?

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Financial Management: Consider two firms alpha and omega that are identical

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