Unformatted text preview: Assume that the MM assumptions hold, and then: 1. Find v, s, r s , and WACC for firms U and L. Answer: First, we find Vu and V L : V U = sU r EBIT = 14 . 000 , 500 $ = $3,571,429. V L = V U = $3,571,429. To find r sL , it is necessary first to find the market values of firm L’s debt and equity. The value of its debt is stated to be $1,000,000. Therefore, we can find s as follows: D + S L = V L S L = V L D = $3,571,429  $1,000,000 = $2,571,429. Mini Case: 17  15...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.
 Spring '08
 Staff
 Arbitrage

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