TUGAS INDIVIDU

MIM , 12 DES 2020

FAKULTAS EKONOMI DAN BISNIS

1. (MM without taxes) Companies U and L are identical in every respect except that U is unlevered while L has
Rp 10.000.000,00 of 5 percent bonds outstanding. Assume (1) that all of the MM assumptions are met, (2) that
there are no corporate or personal taxes, (3) that EBIT is Rp 2.000.000,00, and (4) that the cost of equity to
Company U is 10 percent.
a. What value would MM estimate for each firm ?
b. What is K s for firm U ? for firm L ?
c. Find S L, and then show that S L + D = VL = Rp 20.000.000,00
d. What is the WACC for firm U ? for Firm L ?
e. Suppose V U = Ep 20.000.000,00 and V L = Rp 22.000.000,00. According to
MM, do these values represent an equilibrium? If not, explain the process
by which equilibrium would be restored.

2. (MM with corporate taxes) Refer to problem 1. Assume that all the facts hold, except that both firms are
subject to a 40 percent federal-plus-state corporate tax rate.
a. What value would MM now estimate for each firm ? (use proposition I)
b. What is K s for firm U ? for firm L ?
c. Find S L, and then show that S L + D = VL results in the same value as
obtained in part a.
d. What is the WACC for firm U ? for Firm L ?

3. (Miller model) Refer to problem 1 and 2. Assume that all facts hold, escept that both corporate and personal
taxes apply. Assume that both firms must pay a federal-plus-state tax rate of T c = 40 %, and that investors in
both firms face a taxe rate of T d = 28 % on debt income and T s = 20 %, on average, on stock income.
a. What is the value of the unlevered firm, V U ? (Note that V U, is now reduced
by the personal tax on stock income, hence V U ≠ Rp 12.000.0000,00 as in
problem 2).
b. What is the value of V L ?
c. What is the gain from leverage in this situation? Compare this with the
gain from lverage in problem 2.
d. Set T c = T s = Td = 0. What is the value of the levered firm?. The gain from
leverage?.
e. Now suppose T s = T d = 0. What are the value of the levered firm and the
gain from leverage?
f. Assume that T d = 28 %, T s = 20 %, T c = 40 %. Now what are the value of the
levered firm and the gain from leverage?.