1. Analysing Modigliani Miller, under Scenario I (in a market where there are no frictional costs from taxes or financial distress), consider a firm with $40 million in cash flows.
   1. If the firm is all equity financed, and RE, the cost of equity, is 13 per cent, what is the value of the firm, VU?
   2. Suppose the firm takes on new debt of $10 million, with a 9 per cent interest rate. What is the new RE or cost of equity for the firm?
   3. Once the firm takes on the $10 million of debt from part b, what is the new WACC for the firm?
   4. What are the cash flows available to equity holders after adding the debt from part b?
   5. What is VL (the value of the levered firm) after adding the debt of $10 million from part b? Show your calculations.