Company A has an expected EBIT of $35 million in perpetuity, a tax rate of 25%, and a debt to equity ratio of 0.2. The firm has $35 million of outstanding debt at an interest rate of 4%.

a. What is Company A's cost of equity?

b. If Company A further increases its borrowing to repurchase its equity, what will happen to the firm value according to M&M proposition?

Please walk me through your calculations.