QUESTION 2 a) The James Brooke Ltd. is unlevered and valued at $320,000. James Brooke Ltd. is currently deciding whether including debt in its capital structure would increase its value. The current cost of equity is 12%. Under consideration is issuing $150,000 in new debt with an 8% interest rate. James Brooke Ltd. would repurchase $150,000 of stock with the proceeds of the debt issue. There are currently 32,000 shares outstanding and effective marginal tax bracket is zero. Determine James Brooke's new WACC. (9 marks) b) Discuss the basic assumptions, results, and intuition of the Modigliani and Miller's Propositions I and II model in a world without taxes. (8 marks) c) Discuss the basic assumptions, results, and intuition of the Modigliani and Miller's Propositions I and II model in a world with taxes. (8 marks) (Total: 25 Marks)