Companies U and L are identical in every respect except that U is unlevered while L has $12 million of 5 percent bonds outstanding. Assume (1) that all of the MM assumptions are met, (2) that there are no corporate or personal taxes, (3) that EBIT is $3 million, and (4) that the cost of equity to Company U is 8 percent.

Find V_U, V_L, r_sL, and r_sU.

Now assume that both firms are subject to a 34 percent federal-plus-state corporate tax rate and that r_sU from part (a) holds. Find V_U, V_L, r_sL, and r_sU.

Now assume that both firms pay a 35 percent federal-plus-state corporate tax rate, and that investors in both firms face a tax rate of T_d = 30% on debt income and T_s = 15% on stock income, and that r_sU from part (b) holds. Find V_U and V_L.