MM with Corporate Taxes Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 7% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) both firms are subject to a 40% federal-plus-state 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? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places. (Hint: Use Proposition I.)

Company U $ 12 million

Company L $ 16 million

What is rs for Firm U? Round your answer to one decimal place. 10 %

What is rs for Firm L? Do not round intermediate calculations. Round your answer to one decimal place.

Find SL, and then show that SL + D = VL results in the same value as obtained in part a. Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answers to two decimal places.

SL = $ million

SL + D = $ million

What is the WACC for Firm U? Do not round intermediate calculations. Round your answer to two decimal places. %

What is the WACC for Firm L? Do not round intermediate calculations. Round your answer to two decimal places.