Deere Co. is considering a target capital structure of 35% debt and 65% equity. The cost of equity for an unlevered firm of Deere Co. is 12% and the before-tax cost of new debt issued is constant at 8%.

1. Calculate the WACC for the Levered Firm assuming the corporate tax rate is 35%. 2. Calculate the Market Value of the Levered Firm and the Market Value of Debt from the Levered Firm if its operating income (EBIT) is $2,000,000 and the corporate tax rate is 35%.