Question: In the M M tax world calculate the value of the
In the M&M tax world, calculate the value of the unlevered firm (U) and the identical risk-levered firm (L). Corporate tax rate = 20%; perpetual EBIT for U and L = $2 million; cost of capital of U = 16%; L’s outstanding debt = $4 million; pre-tax cost of debt = 5%. What is the WACC of L?
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