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Consider the following information for an unlevered firm U: EBIT = BDT 1.6 million annually Unlevered value VU = BDT4 million Tax rate = 25%

Consider the following information for an unlevered firm U: EBIT = BDT 1.6 million annually

Unlevered value VU = BDT4 million Tax rate = 25%

Cost of debt = 12%

A levered firm L in the same business risk class has a debt-to-equity ratio of 0.5. Use the MM propositions to determine:

a. The after-tax cost of equity for firms U and L.

b. The after-tax WACC for both firms.

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