Now assume that Firms L and U are both subject to a 40% corporate tax rate. Using the data given in part b (see below) repeat the analysis called for in b(1) and b(2) using assumptions for the MM model with taxes.

Part b was: (Assume that Firms U and L are in the same risk class and that both have EBIT = $500,000. Firm U uses no debt financing , and its cost of equity is rsU = 14%. Firm L has $1 million of debt outstanding at a cost of rd = 8%. There are no taxes. Assume that the MM assumptions hold. 1) Find V, S, rS, and WACC for firms U and L. 2) Graph (a) the relationship between capital costs and leverage as measured by D/V and (b) the relationship between V and D. )