MM Tool Manufacturing has an expected EBIT of $35,000 in perpetuity and a tax rate of 35 percent. The firm has $70,000 in outstanding debt at an interest rate of 9 percent, and its unlevered cost of capital is 14 percent. What is the value of the firm according to MM Proposition I with taxes? Should Tool change its debt–equity ratio if the goal is to maximize the value of the firm? Explain. LO.1