12-15 Companies U and L are identical in every respect except that U is unlevered while L has Miller Model $10 million of 5% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) both firms are subject to a 40% corporate tax rate, (3) EBIT is $2 million, (4) investors in both firms face a tax rate of To = 28% on debt income and T, 20%, on average, on stock income, and (5) the unlevered cost of equity, Tsu, is 10%. a. What is the value of the unlevered firm, VU? b. What is the value of V,? NEL Problems 399 c. What is the gain from leverage in this situation? Compare this with the gain from leverage in Problem 12-14, d. Set T - T - T 0. What is the value of the levered firm? The gain from leverage? e. Now suppose T. TO, T - 40%. What are the value of the levered firm and the gain from leverage? f. Assume that T = 289, T-28%, and T 40%. Now what are the value of the levered firm and the gain from leverage? Challen 12-15 Companies U and L are identical in every respect except that U is unlevered while L has Miller Model $10 million of 5% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) both firms are subject to a 40% corporate tax rate, (3) EBIT is $2 million, (4) investors in both firms face a tax rate of To = 28% on debt income and T, 20%, on average, on stock income, and (5) the unlevered cost of equity, Tsu, is 10%. a. What is the value of the unlevered firm, VU? b. What is the value of V,? NEL Problems 399 c. What is the gain from leverage in this situation? Compare this with the gain from leverage in Problem 12-14, d. Set T - T - T 0. What is the value of the levered firm? The gain from leverage? e. Now suppose T. TO, T - 40%. What are the value of the levered firm and the gain from leverage? f. Assume that T = 289, T-28%, and T 40%. Now what are the value of the levered firm and the gain from leverage? Challen