2. You are evaluating 2 companies with their capital structures below

	Company A	Company B
% Debt	30%	0%
Cost Debt	7%	7%
% Equity	50%	60%
Cost Equity	12%	11%
% Prefs	20%	40%
Cost Prefs	9%	9%

Tax rate on Debt = 30%

1. Under M&M Proposition 1, which company would be more valuable and why? (3 pts)
2. Under M&M Proposition 2 which company would be more valuable and why (3 pts)
3. Under M&M why do dividends not matter? (3 pts)

3) You are valuing a company that paid a dividend of $150 per share last week, the required rate of return is 10% and it is expected to grow at 4% constantly, what is the value of the company?