Question
You are given the following information: EBIT (for firms L and U in perpetuity) = $300,000; corporate tax rate (T) = 0.0%; cost of equity
You are given the following information: EBIT (for firms L and U in perpetuity) = $300,000; corporate tax rate (T) = 0.0%; cost of equity for firm U (Ksu or rsu) = 10%; cost of debt for firm L (Kd or rd) = 8%; level of debt for firm L (D) = $1,200,000.
What are the values of firm L (VL) and firm U (Vu), respectively, using the M&M theory with zero corporate taxes (i.e., T=0)?
| 1. | $3.0 million (U), $4.2 million (L) | |
| 2. | $3,000,000 (U), $3,000,000 (L) | |
| 3. | $1,500,000 (U), $1,500,000 (L) | |
| 4. | Cannot be determined without additional information. |
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Finance At 40 Financial Intelligence
Authors: MOIRA O'NEILL Moira O'Neill
1st Edition
1408101114, 978-1408101117
