is unlevered while has 12-13 Comp and are identical in every respect except that $10 million of hands outstanding. Assume that (1) all of the MM assumptions are met, 21 there are no corporate or personal taxes O ESIT is $2 million, and (4) the cost of equity to Company Lis 10 What w e would MM estimale for each firm? b What is t for Firm U7 For Firm Finds, and then show that 5 + D- V - $20 million d. What is the WACC for Firm U7 For Firm L? Suppose V - $20 million and V = $22 million. According to MM, do these values represent an equitibrium? If not, explain the process by which equilibrium would be restond. 12-14 Companies L and L are identical in every respect except that U is unlevered while L has Corpore 510 million of 5 bonds outstanding Assume that (1) all of the MM assumptions are met, ONE (2) both firms are subject to a 40% corporate tax rate, (3) EBIT is $2 million, and (4) the unlevered cost of equity is 10% What value would MM now estimate for each firm? (Use Proposition 1.) b. What is t, for Firm U? For Firm L? c Find 5, and then show that SL+D - Vresults in the same value as obtained in Parta. d. What is the WACC for Firm U? For Firm L? 12:15 Companies Miler Model $10 million of 5% bonds outstanding. Assume that (1) all of the MM assumptions are met, and L are identical in every respect except that U is unlevered while L has (2) both firms are subject to a 40% corporate tax rate, (3) EBIT is 52 million, (4) investors in both firms face a tax rate of T. = 28on debt income and T, = 20%, on average, on stock income, and (5) the unlevered cost of equity, What is the value of the unlevered firm, VU? is 10%. that W cospon dan b. What is the value of V? NEL