Modigliani Miller Proposition Use the following information to answer both Problem 1 and Problem 21 Consider ABC corporation. ABC's yearly (operating) free cash flows are expected to equal 200, each year forever, i.e., cash flows are perpetual. The discount rate for these cash flows is 20%; the risk-free interest rate is 4%. 1. Suppose that the assumptions of the MM Proposition hold, i.e., capital markets are perfect and there are no corporate taxes. a. First, Suppose that ABC is all equity financed. What is the value of ABC Corp.? What is the required return on ABC's equity? b. Now, suppose that ABC decides to issue perpetual debt worth 400. The proceeds from the debt issue will be paid to ABC's shareholders. This debt issue is risk free. ABC's debt will consist of perpetual bonds which make an interest payment each year forever. ABC's free cash flows will not be affected by the debt issue. After the debt issue, what is the value of ABC Corp.? What is the required return on ABC's equity