Companies U and L are identical in every respect except that U is unlevered while L has

Question:

Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 5% bonds outstanding. Assume that (1) all of the MM assumption are met, (2) both firms arc subject to a 40% federal-plus-state corporate tax rate, (3) EBIT is $2 million, and (4) the unlevered is 10%.
a. What value would MM now estimate for each firm?
b. What is rs, for Firm U? For Firm L?
c. Find SL, and then show that SL + D VL, results in the same value as obtained in part a.
d. What is the WACC for Firm U? For Firm L?

Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...