a. Better Call Bill Inc. has 2 million shares outstanding, now trading at $60 per share. The firm has estimated the expected rate of return to shareholders at about 12%. It has also issued long-term bonds at an interest rate of 9% and has a debt value of $40 million. Ignore taxes. Calculate the firms cost of capital.

b. Pollos Foods is currently financed entirely with equity and has an expected annual earnings before interest and taxes (EBIT) of $350,000 in perpetuity. Its unlevered cost of capital is 5%. The company is considering a perpetual loan of $2.9 million with an interest rate of 9% per annum. The corporate tax rate is 35%. What would be the value of the company after the loan ?