an unlevered firm has EBIT of $800,000 forever and a market value of $8,000,000 and pays all earning as dividends to shareholders. the shareholders in this unlevered firm has a required return on 6%, effective tax rate of 40%, return on t-bills is 2% and the return on the market portfolio is 6%. The cost of debt and the firms beta increases with the amount of debt increases.

Value of debt Rd Equity Beta PV of FD Costs

$2,000,000 6.0% $150,000

$4,000,000 7.5% 1.90

-what is the value of the levered firm if it issues a $2,000,000 in debt?

-what is the cost of equity if the firm issues $4,000,000 in debt?

-what is the market value of the equity if the firm issues $4,000,000 in debt?