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Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 4.6% bonds outstanding. Assume that

Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 4.6% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) there are no corporate or personal taxes, (3) EBIT is $1.7 million, and (4) the cost of equity to Company U is 10.1%.

What is the required percentage rate of return of equity for Company L?

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