Firms U and L are in the same risk class and that both have EBIT = $1,000,000. Firm U uses no debt financing and its cost of equity is K_sU=15%. Firm L has $2 million of debt outstanding at a cost of K_d = 5%. There are no taxes and MM assumptions hold.

1. Find V, S, K_s, and WACC for firms U and L.
2. Using the data given above, but now assuming that firms L and U are both subject to a 40% corporate tax rate, repeat the analysis under the MM with-tax model.
3. Now suppose investors are subject to the following tax rates: T_D=20% and T_S=10%. What is the gain from leverage according to the Millers Model?
4. How does this gain compare to the gain in the MM model with corporate taxes?