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2. Consider Table 1. Assume that markets are not perfect, and the corporate tax rate is 15%. There are neither personal taxes nor costs of financial distress. Earnings before interest and taxation (EBIT) for the unlevered (U) and levered firm (L) are $25. The cost of debt capital is 10% and the required return on unlevered equity capital (cost of equity capital) is 15%. Table 1 Assets Total Unlevered Firm (U) 100 Equity 100 Total 100 100 Assets Total Levered Firm (L) 100 Equity Debt 100 Total 50 50 100 a. Consider Table 1. Calculate earnings after interest and tax (EAIT) for the unlevered (U) and levered firm (L). b. Consider Table 1. Calculate the present value of unlevered firm U. d. c. Consider Table 1. Calculate the present value of the interest tax shield for levered firm L. Consider Table 1. The personal tax rate on debt and equity income is 20% and 10%, respectively. Calculate the gain to leverage and the value of levered firm L given personal and corporate taxes

Consider Table 1. Assume that markets are not perfect, and the corporate tax rate is 15%. There are neither personal taxes nor costs of financial distress. Earnings before interest and taxation (EBIT) for the unlevered (U) and levered firm (L) are $25. The cost of debt capital is 10% and the required return on unlevered equity capital (cost of equity capital) is 15%. a. Consider Table 1. Calculate earnings after interest and tax (EAIT) for the unlevered (U) and levered firm (L). b. Consider Table 1. Calculate the present value of unlevered firm U. c. Consider Table 1. Calculate the present volue of the interest tax shield for levered firm L. d. Consider Table 1. The personal tax rate on debt and equity income is 20% and 10K, respectively. Calculate the gain to leverage and the value of levered firm L given personal and corporate taxes

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