a) The value of Smith Limited is $200m and the company is unlevered. They decide to borrow $50m worth of debt for four years (it is expected to be renewed in perpetuity). The tax rate is 30% and the interest rate is 10%. Calculate the value of the levered firm. Answer to the nearest dollar. (2 Marks). Answer:$ Answer

b) The WACC of Smith Ltd is 7%, the value of debt is $1m and the value of ordinary stock is $2m. The cost of debt is 3%. Calculate the cost of common stock. (Answer as a decimal to 4 Decimal Places)