Question
In: Finance
Companies U and L are identical in every respect except that U is unlevered while L...
Companies U and L are identical in every respect except that U is unlevered while L has $8 million of 5% bonds outstanding. Assume that: (1) All of the MM assumptions are met. (2) Both firms are subject to a 35% federal-plus-state corporate tax rate. (3) EBIT is $2 million. (4) The unlevered cost of equity is 10%. What value would MM now estimate for each firm? (Hint: Use Proposition I.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answers to two decimal places
Solutions
Expert Solution
1.
Unlevered value=2*(1-35%)/10%=13.0000 million
2.
Levered value=2*(1-35%)/10%+8*35%=15.8000 million
jeff jeffy answered 2 years agoRelated Solutions
Companies U and L are identical in every respect except that U is unlevered while L...
Companies U and L are identical in every respect except that U
is unlevered while L has $8 million of 6% bonds outstanding.
Assume: (1) All of the MM assumptions are met. (2) Both firms are
subject to a 25% federal-plus-state corporate tax rate. (3) EBIT is
$3 million. (4) The unlevered cost of equity is 9%.
What value would MM now estimate for each firm? (Hint:
Use Proposition I.) Enter your answers in millions. For example, an
answer of...
Companies U and L are identical in every respect except that U is unlevered while L...
Companies U and L are identical in every respect except that U
is unlevered while L has $10 million of 6% bonds outstanding.
Assume: (1) All of the MM assumptions are met. (2) Both firms are
subject to a 25% federal-plus-state corporate tax rate. (3) EBIT is
$5 million. (4) The unlevered cost of equity is 12%.
a.)
What value would MM now estimate for each firm? (Hint: Use
Proposition I.) Enter your answers in millions. For example, an
answer...
Companies U and L are identical in every respect except that U is unlevered while L...
Companies U and L are
identical in every respect except that U is unlevered while L has
$8 million of 5% bonds outstanding. Assume: (1) All of the MM
assumptions are met. (2) Both firms are subject to a 25%
federal-plus-state corporate tax rate. (3) EBIT is $2 million. (4)
The unlevered cost of equity is 12%.
What value would MM
now estimate for each firm? (Hint: Use Proposition I.)
Enter your answers in millions. For example, an answer of...
Companies U and L are identical in every respect except that U is unlevered while L...
Companies U and L are identical in every respect except that U
is unlevered while L has $18 million of 8% bonds outstanding.
Assume that: (1) All of the MM assumptions are met. (2) Both firms
are subject to a 35% federal-plus-state corporate tax rate. (3)
EBIT is $2 million. (4) The unlevered cost of equity is 10%. What
value would MM now estimate for each firm? (Hint: Use Proposition
I.) Enter your answers in millions. For example, an answer...
Companies U and L are identical in every respect except that U is unlevered while L...
Companies U and L are identical in every respect except that U
is unlevered while L has $12 million of 8% bonds outstanding.
Assume that: (1) All of the MM assumptions are met. (2) Both firms
are subject to a 40% federal-plus-state corporate tax rate. (3)
EBIT is $3 million. (4) The unlevered cost of equity is 10%.
What value would MM now estimate for each firm? (Hint:
Use Proposition I.) Enter your answers in millions. For example, an
answer...
Companies U and L are identical in every respect except that U is unlevered while L...
Companies U and L are identical in every respect except that U
is unlevered while L has $12 million of 7% bonds outstanding.
Assume that all of the original M&M assumptions are met, that
EBIT is $3 million for both companies and that the cost of equity
to company U is 9%. If there are corporate taxes at the 34%
marginal level for both firm's what is the M&M WACC for firm
L.
MM with Corporate Taxes Companies U and L are identical in every respect except that U...
MM with Corporate Taxes
Companies U and L are identical in every respect except that U
is unlevered while L has $14 million of 7% bonds outstanding.
Assume that: (1) All of the MM assumptions are met. (2) Both firms
are subject to a 35% federal-plus-state corporate tax rate. (3)
EBIT is $3 million. (4) The unlevered cost of equity is 12%.
What value would MM now estimate for each firm? (Hint:
Use Proposition I.) Enter your answers in millions....
MM with Corporate Taxes Companies U and L are identical in every respect except that U...
MM with Corporate Taxes Companies U and L are identical in every
respect except that U is unlevered while L has $14 million of 8%
bonds outstanding. Assume that: (1) All of the MM assumptions are
met. (2) Both firms are subject to a 40% federal-plus-state
corporate tax rate. (3) EBIT is $4 million. (4) The unlevered cost
of equity is 12%. What value would MM now estimate for each firm?
(Hint: Use Proposition I.) Enter your answers in millions....
MM with Corporate Taxes Companies U and L are identical in every respect except that U...
MM with Corporate Taxes
Companies U and L are identical in every respect except that U
is unlevered while L has $20 million of 6% bonds outstanding.
Assume that: (1) All of the MM assumptions are met. (2) Both firms
are subject to a 35% federal-plus-state corporate tax rate. (3)
EBIT is $4 million. (4) The unlevered cost of equity is 10%.
What value would MM now estimate for each firm? (Hint:
Use Proposition I.) Enter your answers in millions....
MM with Corporate Taxes Companies U and L are identical in every respect except that U...
MM with Corporate Taxes
Companies U and L are identical in every respect except that U
is unlevered while L has $8 million of 6% bonds outstanding. Assume
that: (1) All of the MM assumptions are met. (2) Both firms are
subject to a 35% federal-plus-state corporate tax rate. (3) EBIT is
$5 million. (4) The unlevered cost of equity is 13%.
What value would MM now estimate for each firm? (Hint:
Use Proposition I.) Enter your answers in millions....
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