Consider two firms, Yellow plc and Green plc, that have identical assets and generate identical cash flows. Green plc is an all-equity firm, with 1 million shares outstanding that trade for a price of $24 per share. Yellow plc has 2 million shares outstanding and $12 million dollars in debt at an interest rate of 5%.

1. According to MM Proposition 1, what should be the stock price for Yellow plc? Fully explain your answer.
2. If the annual earnings before interest and taxes for each firm are $5 million, what would be the cost of capital of Yellow plc and of Green plc? Fully explain your answer.