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MM with Corporate Taxes Companies U and L are identical in every respect except that U is unlevered while L has $18 million of 7% bonds outstanding. Assume: (1) All of the MM assumptions are met. (2) Both firms are subject to a 25% federal-plus-state corporate tax rate. (3) EBIT is $4 million. (4) The unlevered cost of equity is 12%. a. What value would MM now estimate for each firm? (Hint: Use Proposition I.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55 . Round your answers to two decimal places. Company U: \$ million Company L: \$ million b. What is rs for Firm U ? Round your answer to one decimal place. % What is rs for Firm L? Do not round intermediate calculations. Round your answer to one decimal place. % c. Find SL, and then show that SL+D=VL results in the same value as obtained in Part a. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55 . Do not round intermediate calculations. Round your answers to two decimal places. SL=$ million SL+D=$ 3 million d. What is the WACC for Firm U? Do not round intermediate calculations. Round your answer to two decimal places. % What is the WACC for Firm L? Do not round intermediate calculations. Round your answer to two decimal places. %

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