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MM with Corporate Taxes Companies U and L are identical in every respect except that...

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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 $16 million of 6% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) both firms are subject to a 40% federal-plus-state corporate tax rate, (3) EBIT is $5 million, and (4) the unlevered cost of equity is 10%. What value would MM now estimate for each firm? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1, 200,000. Round your answers to two decimal places. Company U $ million Company L $ million What is r_s for Firm U? % What is r_s for Firm L? Do not round intermediate calculations. % Find S_L, and then show that S_L + D = V_L results in the same value as obtained in part a. Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1, 200,000. Do not round intermediate calculations. Round your answers to two decimal places. S_L = $ million S_L + D = $ million What is the WACC for Firm U? Do not round intermediate calculations. % What is the WACC for Firm L? Do not round intermediate calculations. %

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