Bruce & Co$.$ expects its EBIT to be $$100,000$ every year forever. The firm can

borrow at $11$ percent. Bruce currently has no debt, and its cost of equity is

$18$ percent. The tax rate is $31$ percent.

Given the above information;

a$)$ Complete the table given below for varying levels of debt below by using

a mix of the given information and using your own computations.

EBIT $$100,000$

Cost of debt $11\%$

Cost of equity when unlevered $18\%$

Tax rate $31\%$

Debt $$0$ $$10,000$ $$20,000$ $$30,000$

Cost of Equity when levered

Equity

D$/$E

Vu

VL

WACC

b$)$ Plot the results from the table into the following two graphs:

i$)$ Value of the firm vis$--$vis$-$ Total debt

ii$)$ Cost of capital of the firm vis$--$vis D$/$E ratio.

iii$)$ Which MM propositions have you demonstrated?