If Maria uses the cost of equity calculated in Question 3A to value her business, would the resulting figure be more likely to overestimate or underestimate her firm's value? Why?

3A:

Maria's car dealership is currently all equity financed, and has a cost of equity of 11.2%. After some consideration, she decided that she could significantly cut her tax bill without risking financial distress if 47% of her firm was financed with perepetual debt. She can borrow at 5.9%, and her tax rate is 31%. What will Maria's cost of equity be according to Modigliani-Miller? Please enter your answer as a decimal to at least three places - 8.6% should be 0.086, for example.

First should solve 3A question. I got it: D/A=0.47 DE=D/(A-D)=0.47/(1-0.47)=0.8868

THEN: 0.112+(0.47/(1-0.47)*0.112-0.059)*(1-0.31)=0.14443.