MM without Taxes

Companies U and L are identical in every respect except that U is unlevered while L has $9 million of 5% bonds outstanding. Assume that (1) there are no corporate or personal taxes, (2) all of the other MM assumptions are met, (3) EBIT is $2 million, and (4) the cost of equity to Company U is 10%.

1. What value would MM 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.

   Company U	$million
   Company L	$million

2. What is r_sfor Firm U? Round your answer to two decimal places.% What is r_sfor Firm L? Do not round intermediate calculations. Round your answer to two decimal places.%
3. Find S_L. Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000.$million
4. What is the WACC for Firm U? Round your answer to one decimal place.% What the WACC for Firm L? Round your answer to one decimal place.%
5. Suppose V_U= $20 million and V_L= $22 million. According to MM, are these values consistent with equilibrium?-Select-YesNoItem 8