Consider a Miller and Modigliani (perfect capital markets with corporate taxes) world. Lemon Ltd and Lime Ltd are identical in all aspects except their capital structures. Lemon Ltd is 100% equity financed and has cash earnings before interest and taxes (Xo) of $135,000. Lemon has an after tax unlevered cost of equity (ku) of 11.5%. Lime Ltd has recently acquired $350,000 of debt in its capital structure, and 100,000 outstanding shares. Assume the corporate tax rate paid by both companies is 35% and the cost of debt (ka) is 8% pa. a. What is the value of the tax subsidy, the value of Lemon Ltd and the value of Lime Ltd? b. Using your figures from (a), what is the value of equity and the WACC for Lime Ltd? c. In a Modigliani and Miller (perfect capital markets with corproate taxes) world, what is the optimal capital structure once all arbitrage opportunities have been removed? Consider a Miller and Modigliani (perfect capital markets with corporate taxes) world. Lemon Ltd and Lime Ltd are identical in all aspects except their capital structures. Lemon Ltd is 100% equity financed and has cash earnings before interest and taxes (Xo) of $135,000. Lemon has an after tax unlevered cost of equity (ku) of 11.5%. Lime Ltd has recently acquired $350,000 of debt in its capital structure, and 100,000 outstanding shares. Assume the corporate tax rate paid by both companies is 35% and the cost of debt (ka) is 8% pa. a. What is the value of the tax subsidy, the value of Lemon Ltd and the value of Lime Ltd? b. Using your figures from (a), what is the value of equity and the WACC for Lime Ltd? c. In a Modigliani and Miller (perfect capital markets with corproate taxes) world, what is the optimal capital structure once all arbitrage opportunities have been removed