Question
MM with Corporate Taxes Companies U and L are identical in every respect except that U is unlevered while L has $12 million of 8%
MM with Corporate Taxes
Companies U and L are identical in every respect except that U is unlevered while L has $12 million of 8% bonds outstanding. Assume: (1) All of the MM assumptions are met. (2) Both firms are subject to a 25% federal-plus-state corporate tax rate. (3) EBIT is $3 million. (4) The unlevered cost of equity is 9%.
What is rs for Firm U? Round your answer to one decimal place.
%
What is rs for Firm L? Do not round intermediate calculations. Round your answer to one decimal place.
%
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Business Forecasting
Authors: John E. Hanke, Dean Wichern
9th edition
132301202, 978-0132301206
