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Companies U and L are identical in every respect except that U is unlevered while L...

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Finance

Companies U and L are identical in every respect except that Uis unlevered while L has $12 million of 7% bonds outstanding.Assume that all of the original M&M assumptions are met, thatEBIT is $3 million for both companies and that the cost of equityto company U is 9%. If there are corporate taxes at the 34%marginal level for both firm's what is the M&M WACC for firmL.

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Companies U and L are identical in every respect except that Uis unlevered while L has $12 million of 7% bonds outstanding.Assume that all of the original M&M assumptions are met, thatEBIT is $3 million for both companies and that the cost of equityto company U is 9%. If there are corporate taxes at the 34%marginal level for both firm's what is the M&M WACC for firmL.

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