7. Bolivia firm is planning to have a target capital structure 60% debt and 40% equity. Suppose the cost of equity for an unlevered firm is 10% and the before tax cost of debt issued is constant at 6%.

a. Calculate the Weighted Average Cost of Capital (WACC) for the Levered Firm assuming the corporate tax rate is 40%

b. Calculate the Market Value of Levered Firm and the Market Value of Equity from Levered Firm if the firm operating income is $1,000,000 and corporate tax rate is 40%