Question

With reference to the M&M irrelevance theorem, calculate the market value of an unlevered firm (U) and an identical risk-levered firm (L). The expected EBIT of the unlevered firm (U) = $1.5 million, which will remain constant indefinitely. The cost of capital is 12 percent. If the levered firm (L) has $6 million debt outstanding, what is the market value of the equity?



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  • CreatedFebruary 25, 2015
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