Investment Theory:

Assume corporate taxes as detailed in the following question:

The Tulip Company expects perpetual earnings before interest and taxes (EBIT) of $4 million per year. The firm has $10 million of debt, at a pre-tax cost of 10% per annum. The firms after-tax, allequity discount rate (rA ) is 15%. Tulip is subject to a corporate tax rate of 25%.

a. What is the total market value of the firm?

b. What is the companys cost of equity (rE )? (Hint: first calculate the firms D/E ratio)

c. What is the companys weighted average cost of capital (wacc)?