Question #6 (10 points) MBI LLC expects an EBIT of $2,300 every year forever. The company currently has no debt and is valued at $12,650. The tax rate is 23 percent. SHOW YOUR WORK 1) What will the value of the firm be if the company takes on debt equal to 50 percent of its unlevered value? Answer 2) What will the value of the firm's equity after the capital restructuring? Answer 3) Suppose the company will borrow the debt at a cost of 6 percent. What will the firm's new cost of equity be? Answer 4) What will the firm's new WACC be? Answer QUESTION #3 (15 points) Giant Inc. has $350 million of bonds at par value outstanding. The bonds have a coupon rate of 7.5% and a yield to maturity of 6.5%. They currently trade in the market at 110% of par value. The company is publicly traded and has 25 million shares outstanding that sell for $48.75 per share. The stock's beta is 1.10, and the current 20 year treasury yield is 2.5%. The expected market risk premium (ERP) is 6.0% and the tax rate is 25%. SHOW YOUR WORK 1) What is the after-tax cost of debt that should be used in the calculation of the weighted cost of capital? Answer 2) What is the cost of equity? Answer 3) What are the weightings to be used in the calculation of the weighted cost of capital? WD WE 4) What is the weighted cost of capital? Answer 5) If the beta of the company was 1.25 would this indicate the equity of the company is more risky or less risky