EMR Limited has an EBIT of $450,000 that it expects it will earn forever, and it pays all of its earnings as dividends to shareholders (i.e. no growth). The firm has a corporate tax rate of 40% and has an un-levered beta of .90.The firm has 92,656 common shares issued and outstanding.In the market, you observe that Government T-bills are being sold to yield 4% and the S&P/TSX Composite Index is expected to yield 10%.Assuming a world of taxes and a cost for the risk of default.

1.What is the value of the firm if the firm issues $1,000,000 of bonds at a coupon rate of 7.5%? The beta for the equity of the leveraged firm is 1.22.

2.What is the WACC for the firm with its new capital structure?