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(SHOW CALCULATIONS PLEASE) Unlevered Corporation (Firm U) has a total market value of $15,000,000, a tax rate of...

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Finance

(SHOW CALCULATIONSPLEASE) Unlevered Corporation (FirmU) has a total market value of $15,000,000, a taxrate of 40 percent, and earnings before interestand taxes (EBIT) of $2,000,000. LeveredCorporation (Firm L) is identical in all respects to FirmU, but Firm L has $13,000,000 market (and book)value of debt outstanding. Firm L pays total annual interest of$1,040,000 on this debt. Both firms satisfy the MMassumptions. Now answer next 4 questions.

a. What is the value of Firm Laccording to MM’s Proposition I with corporate taxes?

b. What is Firm U’s cost ofequity?

c. What is Firm L’s cost ofequity?

d. What is Firm L’s weighted averagecost of capital?

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(SHOW CALCULATIONSPLEASE) Unlevered Corporation (FirmU) has a total market value of $15,000,000, a taxrate of 40 percent, and earnings before interestand taxes (EBIT) of $2,000,000. LeveredCorporation (Firm L) is identical in all respects to FirmU, but Firm L has $13,000,000 market (and book)value of debt outstanding. Firm L pays total annual interest of$1,040,000 on this debt. Both firms satisfy the MMassumptions. Now answer next 4 questions.a. What is the value of Firm Laccording to MM’s Proposition I with corporate taxes?b. What is Firm U’s cost ofequity?c. What is Firm L’s cost ofequity?d. What is Firm L’s weighted averagecost of capital?

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