1A. (10 points) Maria's car dealership is currently all equity financed, and has a cost of equity of 13.1%. After some consideration, she decided that she could significantly cut her tax bill without risking financial distress if 34% of her firm was financed with perepetual debt. She can borrow at 4.6%, and her tax rate is 36%. What will Maria's cost of equity be according to Modigliani-Miller? Please enter your answer as a decimal to at least three places - 8.6% should be 0.086, for example.

1B. (10 points) If Maria uses the cost of equity calculated in Question 1A to value her business, would the resulting figure be more likely to overestimate or underestimate her firm's value? Why?