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Answer is A, but not sure how to get there. please show all steps and calculations so I can fully understand how to solve. thank
Answer is A, but not sure how to get there. please show all steps and calculations so I can fully understand how to solve. thank you
30. Consider the same two firms U and L - that are identical except for capital structure. Each firm expects EBIT of $650,000 each year forever. Firm U has a cost of equity of 10% and Firm L has $2 million in perpetual debt with a coupon rate of 7%. There is no chance of bankruptcy, but earnings of each are taxed at a rate of 45%. What is the value of firm L? A. 4,475,000 B. 5,575000 C. 3,575,000 D. 6,500,000 E. 650,000Step by Step Solution
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