Question. NSP is a publicly traded company with a D$/$E ratio of $0\mathrm{.}7.$ The cost of debt for NSP

is $6\%,$ and the unlevered beta is $0\mathrm{.}9.$ The yield to maturity of T$-$Bills is $3\%$ and the market risk

premium is $7\%.$

a$)$ What is the cost of equity of the levered firm? Assume all M&M general assumptions

hold. $(6$ marks$)$

b$)$ How does the cost of equity change if we impose a $30\%$ corporate tax while the

unlevered beta remains the same? $(3$ marks$)$