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...
View
Full Document
 Spring '08
 Staff
 Finance, Arbitrage, Trigraph, VL, MM assumptions

Click to edit the document details