Question: Problem #3 (8 points) Consider two firms Smith and Jones that are identical except for capital structure. Each firm expects EBIT of $840,000 each year

Problem \#3 (8 points) Consider two firms Smith and Jones that

Problem \#3 (8 points) Consider two firms Smith and Jones that are identical except for capital structure. Each firm expects EBIT of $840,000 each year forever. Smith has a cost of equity of 12% and firm Jones has $2.0 million in perpetual debt with a coupon rate of 10%. Assume Case I-no tax What is the value of each firm and what is the cost of capital for each firm

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