[mekenye]

hi tutor kindly help me solve this problem..
companies U and L are identical in every respect that U is unleveraged while L has $ 10million of 5 percent bonds outstanding. Assume that all MM assumptions are met and that there are no corporate or personal taxes and EBIT is $ 4million and that the cost of equity to company U is 10 percent.
Required,
i) what value would MM estimate for each firm?
ii) what is Ke for firm U and firm L?
iii) what is the value of equity for firm L?

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