Assume the M&M assumptions with taxes hold, i.e. no default risk, no agency conflicts. The corporate tax rate is equal to 30%. Consider two firms U and L that only differ in terms of their capital structure: U is all-equity financed, while L is levered with D/E=2. Assume that U generates FCFF=100 per year forever at a cost of capital of 10% and that L's firm value is given by V(L)=1,250. The risk-free rate is equal to 2%.

1) What is U's firm value?

2) What is L's market value of debt?

3) What is L's market value of equity?

4) What is L's cost of equity?

5) What is L's cost of capital?