1. What are the Discount For Liquidity and the Discount For Control. How do they affect a corporations valuation?

2. Consider three firms A, B, and C, all of which have the following financial costs:

r_e= 16%

WACC = 12%

i_L(interest rate on its liabilities) = 6%

These three firms have the following profitability measures:

	A	B	C
ROA	14%	8%	5%
ROE	18%	12%	10%

For each of these three firms, answer the following questions:

1. Is the overall enterprise profitable?

2. Is the equity of the firm profitable?

3. Would each firm improve its profit if it increased its debt, that is increased its leverage?