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Information for an unlevered firm

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Reference no: EM132820043

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) The cost of equity for firms U and L

b) The after tax WACC for both firms

Reference no: EM132820043

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