and operate in a perfect capital market. Also, for both firms the required return on assets, $r_A,$ is $7\mathrm{.}5\%$ and the risk$-$free rate is $3\mathrm{.}0\%.$

a$.$ For both firms calculate the total firm value, market value of debt and equity, and required return on equity.

b$.$ Recalculate the values in part a assuming that the market mistakenly requires a return on equity of $10\%$ for Leverage.

c$.$ Explain how arbitrage traders will force Leverage firm's value into equilibrium.

a$.$ The total firm value of NoLeverage is $$13,333,333.($Round to the nearest dollar.$)$

The market value of NoLeverage's debt is $$0.($Round to the nearest dollar.$)$

The market value of NoLeverage's equity is $$13,333,333.($Round to the nearest dollar.$)$

The required return on NoLeverage's equity is $\%.($Round to one decimal place.$)$

The total firm value of Leverage is $$13,333,333.($Round to the nearest dollar.$)$

The market value of Leverage's debt is $

$($Round to the nearest dollar.$)$

The market value of Leverage's equity is $$6,666,667.($Round to the nearest dollar.$)$

The required return on Leverage's equity is $12\mathrm{.}0\%.($Round to one decimal place.$)$

b$.$ If the market mistakenly requires a return on equity of $10\%$ for Leverage, the market value of Leverage's equity is $?.($Round to the nearest dollar.$)$