Consider a firm with a debt-equity ratio of 0.40. The required rate of return on this firmsunlevered equity is 18% and the pre-tax cost of debt is 8%. Sales, which totalled $34 millionlast year, are projected to remain at that level for the foreseeable future. Variable costscomprise 52% of sales, while fixed costs are $5,000,000. The corporate tax rate is 35% andall earnings are distributed as dividends to shareholders at the end of each year. Based onthe above information, answer the following questions:

a) What is the value of the firm if it carried no debt?

b) What is the required rate of return on the firms levered equity?

c) What is the value of the companys debt and equity using the WACC method? Use the

WACC to also calculate the firms total value.

d) What is the value of the firms equity if the (Flow to Equity Approach)FTE method is used?