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Companies U and L are identical in every respect except that U is unlevered while L has $8 million of 7% bonds outstanding. Assume that (1) there are no corporate or personal taxes, (2) all of the other MM assumptions are met, (3) EBIT is $1 million, and (4) the cost of equity to Company U is 10%.

a. What is rs for Firm U? Round your answer to two decimal places. % What is rs for Firm L? Do not round intermediate calculations. Round your answer to two decimal places. %

b. Find SL. Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. $ million

c. What is the WACC for Firm U? Round your answer to one decimal place. % What the WACC for Firm L? Round your answer to one decimal place. %

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Financial Management, Finance

Category:- Financial Management
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