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What is the value of firm u

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Reference no: EM132814047

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?

Reference no: EM132814047

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