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McDavid Machinery Corp is an unlevered firm. The current market value of its equity is $17.5 million. a. If there are no taxes and the

McDavid Machinery Corp is an unlevered firm. The current market value of its equity is $17.5 million.

a. If there are no taxes and the EBIT is $2,012,500, what is the cost of equity? What is the WACC?

b. If the tax rate is 35%, what is the EBIT if the unlevered cost of equity is 11.5%? What is the WACC? (Assume there is no cost of financial distress and general M&M assumptions apply)

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