A corporation has EBIT of 126.58 and Debt of 500. You were informed that the cost of debt is 10% and unlevered cost of capital is 20%. Tax rate is 21%.

Instructions: Answer the following questions. Show your solutions.

1. What is the value of equity? Hint: first find VU (value of the firm with no debt), second VL (value of the firm with debt), and lastly E (value of Equity of a levered firm). (10 points)

2. What is the cost of equity? (5 points)

3. What is the WACC? (5 points)

4. Is debt financing advantageous? (5 points)