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You are given the following information: EBIT (for firms L and U in perpetuity) = $300,000; corporate tax rate (T) = 30%; cost of equity
You are given the following information: EBIT (for firms L and U in perpetuity) = $300,000; corporate tax rate (T) = 30%; 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 corporate taxes (T= 30%)?
| 1. | $2,460,000 (L), $1,200, 000 (U) | |
| 2. | $2,100,000 (L), $2,100, 000 (U) | |
| 3. | $2,460,000 (L), $2,460, 000 (U) | |
| 4. | $2,460,000 (L), $2,100, 000 (U) |
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