Companies u and l are identical in every respect except, Financial Management

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Companies u and l are identical in every respect except

Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 5.9% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) both companies are subject to a 34% federal-plus-state corporate tax, (3) EBIT is $2 million, and (4) the cost of equity to Company U is 9%. What is the value, in millions, of Company L under the MM model?

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Financial Management: Companies u and l are identical in every respect except

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Financial Management: Companies u and l are identical in every respect except

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