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The two firms U and L differ only in their capital structure. You have the following information (? denotes missing data):

D (Value of perpetual riskfree debt) E(Value of Equity) E(EBIT(1-T)(operational cashflow, a? 0 800 1500 perpetuity) Expected return on equity Re(riskfree rate) 10% 4% a) Compute the operational cashflows of U and L, the value of equity of L, the cost of capital of L(HwACC) and the expected return on levered equity(HL) when the corporate tax rate (t) is 0. b) Compute the same quantities as in a.) when τ-0.2 assuming that (EBIT(1-t)) stay the same as in a.) both for U and L

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE. THANK YOUHome nert Page Layout Formulas Data Review View dd-Ins Cut Copy Σ AutoSum Calibri ー E ゴWrap Text General ,_a. ars-函Merge & Center, $, % , 弼,8 C Paste B 1 u. Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard GQ139 GH Font Alignment Number Styles Cells Gl GJ GK GL GM GN GO GP GR GS GT GU GV GW According to MM approach when only capital structures are different both will have same market value if taxes are absent 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 14 1 r H CALCULATOR LOAN OPTIONS Here, firm U has value of equity 1500 as firm U is unlevered, value of firm = value of equity-1500 value of firm EBIT/return on equity 1500 EBIT/0.10 EBIT = 150 Operational cashflows for firm U & L-EBIT= 150 Value of unlevered firm = value of levered firm value of levered firm 1500 value of levered firm- value of equity(S))+ value of debt (D) 1500 value of equity 800 value of equity (S)- 700 value of equity of levered firnm pvr fv, annuty CAP STRU VALUE BOX DILUTION . DOLLAR COST AVG MORTGAGE EXPO Sheet1 . Sheet2. Shel- . 福 130% 02:49 4s ENG 23-01-2019Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text General aCopy ,_a. ars-函Merge & Center, $, % , 弼,8 C Paste B l u. Conditional Format CeInsert Delete Format Formatting, as Table w styles. ▼ ㆆ ▼ Sort &Find & 2 ClearFe Select Edting Format Painter Clipboard GQ159 GH Font Alignment Number Styles Cells Gl GJ GK GL GM GN GO GP Ga GR GS GT GU GV GW 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 4CALCULATOR LOAN OPTIONS v, fv, annuity CAP STRU VALUE wacc for unlevered firm-return on equity-re-1096 expected return on levered equity rs re (re-rd) (D/S) rs 0.10+(0.10-0.04) (800/700) rs - 16.86% wacc for levered firm wacc- (700/1500)(16.86%) + (80O/1500)*(4%) 10.00% BOX DILUTION . DOLLAR COST AVG MORTGAGE EXPO Sheet1 . Sheet2. Shel- . 福 130% 02:49File Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum Calibri Wrap Text General ta copy. в 1 프 . Ej-., ΔFile Home nert Page Layout Formulas Data Review View dd-Ins s Cut ta copy ▼ Σ AutoSum Calibri ー E ゴWrap Text General B า 프 . Ej-., Δ. : r_一 逻锂函Merge & Center. $, % , 弼,8 conditional Format . Cell Insert Delete Format Paste Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. Styles ▼ ㆆ ▼ Clipboard GP182 GH Font Alignment Number Cells Gl GJ GK GL GM GN GO GP Ga GR GS GT GU GV GW 164 165 166 167 168 169 170 wacc for unlevered firm-return on equity-re-1096 expected return on levered equity rs-re(re-rd)(D/S)(1-t) rs 0.10+(0.10-0.04) (800/560)(1-0.2) rs - 16.86% wacc for levered firm 172 173 174 175 176 wacc = (560/1360)(16.86%) + (800/!360)*(4%)(1-0.2) 8.82% 178 179 180 181 182 4CALCULATOR LOAN OPTIONS v, fv, annuity CAP STRU VALUE BOX DILUTION. DOLLAR COST AVG MORTGAGE EXPO ( Sheet1 . Sheet2. Sh 福 130% 02:57

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