Greenwood Groceries is an unlevered firm with constant EBIT of $6,000,000 per year in perpetuity. You are considering the use of some debt financing to repurchase shares. You have developed the following schedule based on the PV of bankruptcy costs of $18,000,000:

Value of Debt	Probability of financial distress	Cost of Debt
$2,000,000	0.00%	2%
4,000,000	2.00%	4%
6,000,000	4.00%	5%
9,000,000	10.00%	6%
12,000,000	20.00%	8%
15,000,000	35.00%	12%

The current cost of equity is 15%, and the tax rate is 40%.

a) What is Greenwoods market value and the WACC before any debt is taken on? (3 marks)

b) According to M&Ms case (world) II, what is Greenwoods optimal level of debt? No calculation required (2 marks)

c) Calculate the value of the company at each level of debt. What is the optimal capital structure when financial distress costs are included? (13 marks)

d) Compute the WACC at the optimal capital structure determined in part (c). (7 marks)