(1) Two investors have purchased shares of an all-equity firm which has 70,000 shares outstanding at 15 GBP each. A owns shares of a total value of 50,000 GBP and has borrowed 15,000 GBP. B owns shares of a total value of 90,000 GBP and has lent 20,000 GBP. The firm decides to repurchase 25% of its shares by raising perpetual debt at the risk-free rate of 6%.

(i) Assume that the first Modigliani Miller proposition holds and the investor positions are optimal. Find the new positions of the investors.

(ii) Consider the alternative case where the firm issues debt and repurchases equity but there is a corporate tax rate of 20%. Is there any change in wealth for the investors and in the value of the firm?