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Determine the cost of equity for firms U and L

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Reference no: EM132868324

Question - Consider the following information for an unlevered firm UEBIT = $1,600 annually

Unlevered value Vu = $4,000

Tax rate = 34%

Cost of Debt = 10%

A levered firm L in the same business risk class has a debt ratio of 0.5. Use the MM propositions to determine:

a) Determine the cost of equity for firms U and L?

b) Determine the after tax WACC for both firms?

Reference no: EM132868324

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