Modigliani \& Miller Propositions NoLeverage is a firm financed entirely with equity and Leverage is a firm financed with 50-50 equity and debt, but otherwise the two firms are identical. Both firms have an annual EBIT of $5 million and operate in a perfect capital market. Also, for both firms the required return on assets, rA, is 7.0% and the risk-free rate is 3.0%. a. For both firms calculate the total firm value, market value of debt and equity, and required return on equity. b. Recalculate the values in part a assuming that the market mistakenly requires a return on equity of 9% for Leverage. c. Explain how arbitrage traders will force Leverage firm's value into equilibrium