Consider the same two firms U and L - that are identical except for capital structure. Each firm expects EBIT of $650,000 each year forever. Firm U has a cost of equity of 10% and Firm L has $2 million in perpetual debt with a coupon rate of 7%. There is no chance of bankruptcy, but earnings of each are taxed at a rate of 45%. 

Part 1- What is the value of firm U? 

Part 2- What is the value of equity for Firm U?

Part3- What is the value of equity for Firm L? 

Part4- What is the value of Firm L?

Answer rating: 100% (QA)

Heres the breakdown for each part of your query Part 1 Value of Firm U The value of Firm U can be ca... View the full answer