A firm has an annual EBIT of $50,000 in perpetuity. the firm is unlevered and pays no corporate rates. The firm's shareholders require a 10% return.

1. what is the current value of this firm?

a. 5,000 b. 45,000 c. 450,00 d. 500,000 2. What would happen to the value of this firm if it decided to add $250,000 of debt at 5% interest and use the proceeds to buy back shares?

A) The value of the firm would remain unchanged. B) The value of the firm would decrease by $250,000. C) The value of the firm would increase by $250,000. D) The value of the firm would increase by more than $250,000. E) The value of the firm would decrease by more than $250,000.