c) FIN222 Ltd carries $24 million in debt. The market value of debt matches its book value of $24 million. The firm expects to generate $15.68 million per year in free cash flows after corporate taxes, into perpetuity, with no growth expected. The expected dividend payable to shareholders is $14 million per year, into perpetuity. The cost of debt is 10% before tax and the cost of equity to the firm is 12%. Corporate tax rate is 30%. Assume that all of its shareholders can fully utilise the franking credits.

i) Assume a classical tax system and calculate the market value of equity. (1 mark)

ii) Assume a classical tax system and calculate the market value of the firm. (1 mark)

iii) Assume an imputation tax system and calculate the market value of equity. (2 marks)

iv) Assume an imputation tax system and calculate the WACC. (2.5 marks)