B. Assume that firms U and L are in the same risk class, and that both have EBIT = $500,000. Firm U uses no debt financing, and its cost of equity is r_sU = 14%. Firm L has $1 million of debt outstanding at a cost of r_d = 8%. There are no taxes. Assume that the MM assumptions hold, and then:

1. Find v, s, r_s, and WACC for firms U and L.
2. Graph (a) the relationships between capital costs and leverage as measured by D/V, and (b) the relationship between value and D.