Consider a world of MM with corporate taxes but no financial distress costs. The JI Corp (JIC) has an expected EBIT (earnings before interest and tax) of $17,500 in perpetuity, a tax rate of 40%, and a debt-equity ratio of 0.8. The firms before-tax interest rate is 9% p.a. and its WACC is 8.4%.

(a) What is JICs cost of equity according to MM? Ans: _______________%

(b) What is the cost of equity of unlevered (100% equity) firm? Ans:________________%

(c) What is the value of unlevered firm? This 100% equity firm is exactly the same as JIC except

for the capital structure. Ans: $________________

(d) What is the value of JIC? Ans: $________________