Question: How do i answer both questions 1 and 2? 1. Capital Structure and M&M Propositions with Taxes Assuming perpetual cash flows in Case II -

How do i answer both questions 1 and 2?

1. Capital Structure and M&M Propositions with Taxes

Assuming perpetual cash flows in Case II - Proposition I, what is the value of the equity for a firm with following values?:

EBIT = $50 million; Tax rate = 21%; Debt = $100 million; Cost of debt = 9%; Unlevered cost of capital = 12%

what is the cost of equity and the WACC (return on assets = RA)?

2. Capital Structure and M&M with Taxes and Bankruptcy

a) What is the difference between direct and indirect bankruptcy costs?

b) What is the difference between liquidation and reorganization?

c) What is the difference between marketed claims and non-marketed claims?

d) Under the pecking order theory, what is the order in which firms will obtain financing?

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