Identical in every way except their capital structures

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Levered, Inc., and Unlevered, Inc., are identical in every way except their capital structures. Each company expects to earn $28.1 million before interest per year in perpetuity, with each company distributing all its earnings as dividends. Levered’s perpetual debt has a market value of $82 million and costs 9 percent per year. Levered has 1.4 million shares outstanding, currently worth $124 per share. Unlevered has no debt and 3.6 million shares outstanding, currently worth $70 per share. Neither firm pays taxes.

What is the value of each firm?

Unlevered $

Levered $

Reference no: EM131897103

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