2. (a) Firm A's capital structure contains 30 percent debt and 70 percent equity. Firm B's capital structure contains 50 percent debt and 50 percent equity. Both firms pay 6 percent annual interest on their debt. The stock of Firm A has a beta of 1.0, and the stock of Firm B has a beta of 1.375. The risk-free rate of interest equals 4 percent, and the expected return on the market portfolio equals 12 percent. Required: (0) Calculate the WACC for each firm, assuming there are no taxes. (ii) Recalculate the WACC figures, assuming that the firms face a marginal tax rate of 34 percent. (iii) Explain how taking taxes into account in part (ii) changes your answer from part(). (b) Firm B has an expected EBIT of 40,000 in perpetuity and a tax rate of 28 per cent. The firm has 50,000 in outstanding debt at an interest rate of 6 per cent, and its unlevered cost of capital is 12 per cent. 1 Required: 0 What is the value of the firm according to Modigliani and Miller (M&M) Proposition I with taxes? (ii) Should firm B change its debt-equity ratio if the goal is to