MM with Corporate Taxes Firms U and I are identical in every respect. The information...
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MM with Corporate Taxes Firms U and I are identical in every respect. The information for firms U and L to the right. Debt ID rsu EBIT Tax rate U L 0 $ 6.00 million 0 5.5% 12.0% 12.0% $ 2.10 $ 2.10 million 37% Assume that: (1) All of the MM assumptions are met. (2) Both firms are subject to the same federal-plus-state corporate tax rate. (3) EBIT is the same for both firms.($) The unlevered cost of equity, rsu is the same for both firms. 37% a. What value would MM now estimate for each firm? (Hint: Use Proposition 1) (5 points) b. What is rst for Firm L? (5 points) C. Find SL, and then show that SL+D = V. results in the same value as obtained in Part a. (5 points) d. What is the WACC for Firm U? for Firm L? (10 points) Please show work and answer questions completely to receive full credit. a Vu VL million million b ISL SL SL + D million million d WACCU WACCL
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