You have collected the following information regarding Zuva  limited:

Sales                                                                  23 400

Operating costs                                                  15 000

EBIT                                                                    8 400

Interest                                                                 1 600 

     6 800

Tax                                                                       2 720

Net income                                                            4 080

The corporate tax rate is 40%. The cost of equity of an equivalent un-geared firm in the same

Risk class is 24%. Debt capital has a yield of 16%.

• Determine the value of the firm according to MM Proposition 1.
• Determine the cost of equity of the geared firm (ke) according to MM Proposition 2.

c)   Determine the value of the firm according to MM with corporate taxes.

d)   Determine the cost of equity of the firm according to MM Proposition 2 adjusted for

Corporate taxes.

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