Question
Company U and L are identical except that U is unlevered while L has $3M of 6% bonds outstanding, and the EBIT is $1M. The
Company U and L are identical except that U is unlevered while L has $3M of 6% bonds outstanding, and the EBIT is $1M. The cost of equity to firm U is 10%. According to MM theory with no tax, VU= VL= $10M.
If you own 10% of L's equity, what will be the current annual cash flow?
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Contemporary Financial Management
Authors: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
13th edition
1285198840, 978-1285198842
