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Question 16 You are considering two identical firms one levered the other not. Both firms...

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Question 16 You are considering two identical firms one levered the other not. Both firms have expected EBIT of $600. The value of the unlevered firm (VU) is $2000. The corporate tax rate (t) is 30%. The cost of debt (rD) is 10%, and the ratio of debt to equity (D/E) is 1 for the levered firm. (a) Calculate the cost of equity for both the levered (TL) and unlevered firms (rU). (b) Calculate the weighted average cost of capital for each firm. (c) Why is the cost of equity higher for the levered firm, but the WACC lower? (d) In an MM world without taxes, what is the optimal capital structure

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