4. Compton Corporation currently has no debt in its capital structure. As an unlevered firm, its cost of equity is 13 percent. It is considering substituting $8,000 in debt at 6 percent interest. The EBIT for the firm is $5,000 under either scenario, and the tax rate is 35 Unlevered Firm $ 5,000 Levered Firm $5,000 EBIT Interest BTt5,00030 Taxes (.35) Net Income 4,520 1,582 2,938 3,250 a. What is the value of the unlevered firm? a S16,000 b. $17,500 c. $25,000 d. $32,500 b. How much value will be added to the firm by substituting $8,000 in debt? a. $1,688 b. $1,750 c. $2,800 d. $3,250 c. Calculate the cost of equity and the WACC for the levered firm. 4 0