b. Maxy Corp. considers a project in a new line of business which has no debt and an equity cost of capital of 14%. Suppose that the firm decides to increase the projects leverage and to maintain the projects market debt-to-value ratio of 1/2. The project's debt cost of capital is 8% and its marginal tax rate is 21%. Assume that the project's unlevered cost of capital remains constant, i.e. 14%.

i. What will the projects effective after-tax WACC be with the addition of leverage? [2 marks]

ii. What does the value of the project increase by for every $1 in new permanent debt that the firm issues to finance the project? Explain. [2 marks]