What is the required return on equity for lever

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Reference no: EM131068956

Companies Udon and Lever are identical in every aspect except that Udon is un-leveraged while Lever has $15 million of 6 percent bonds outstanding. Assume (1) that all of the MM assumptions are met, (2) both firms are subject to a 40 percent federal-plus-state corporate tax rate, (3) that EBIT is $10.0 million, and (4) that the cost of equity to Company U is 10 percent. What value would MM estimate for each firm? What is the required return on equity (Ks) for Lever? What is WACC for each firm?

Reference no: EM131068956

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