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Question 2 (12 points) Mayflower Inc. has an expected EBIT of $35 million in perpetuity, a tax rate of 25%, and a debt to equity

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Question 2 (12 points) Mayflower Inc. has an expected EBIT of $35 million in perpetuity, a tax rate of 25%, and a debt to equity ratio of 0.2. The firm has $35 million of outstanding debt at an interest rate of 4%. a. What is Mayflower's cost of equity? b. If Mayflower further increases its borrowing to repurchase its equity, what will happen to the firm value according to M&M proposition

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