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4. Two firms, No Leverage Inc. and High Leverage Inc., have equal levels of operating risk and differ only in their capital structure. No Leverage
4. Two firms, No Leverage Inc. and High Leverage Inc., have equal levels of operating risk and differ only in their capital structure. No Leverage is unlevered and High Leverage has $500,000 of perpetual debt in its capital structure. Assume that the perpetual annual income of both firms available for stockholders is paid out as dividends. Hence, the growth rate for both firms is zero. The income tax rate for both firms is 40 percent. Assume that there are no financial distress costs or agency costs. You are given the following data: a. Market value of No Leverage Inc. b. Market value of High Leverage Inc. c. Present value of the tax shield to High Leverage Inc
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