Mr$.$ Schenk runs a franchise of laundry stores called Deep Clean Inc. $($DCI$).$ Currently DCI uses only equity capital.

Mr$.$ Schenk was approached by representatives from Lenders Inc. who have pointed out to him that his cost of

unlevered equity capital is $15\%$ and the cost of debt capital is only $6\%.$ The reps said his company $($which produces

before$-$tax operating cash flows of $$5$ million per year$)$ would benefit from using some debt. They recommend that he

issues $$12$ million worth of bonds and use the entire proceeds to repurchase $$12$ million worth of its own stocks.

Assume that both the firm's cash flows and the debt are perpetual, and DCI's marginal corporate tax rate is $30\%.$

a$)$ What is the current value of the firm without debt?

b$)$ If Mr$.$ Schenk follows Lenders Inc.$\text{'}$s plan:

i$.$ What would be the value of the firm?

ii$.$ What would be the cost of equity of the firm?

c$)$ Now assume interest expenses were not tax deductible. If Mr$.$ Schenk still followed Lenders' advice to issue debt

and repurchase an equal amount of equity, even though interest expenses were not tax deductible:

i$.$ What would be the value of the firm?

ii$.$ What would be the cost of equity of the firm?