Running Deere firm is considering a target capital structure 45% debt and 55% equity. The cost of equity for an unlevered firm of Running Deere is 14% and the before tax cost of new debt issued is constant at 8%.

(a) Calculate the Weighted Average Cost of Capital (WACC) for the Levered Firm assuming the corporate tax rate is 40% (3 points)

(B) Calculate the Market Value of Levered Firm and the Market Value of Debt from Levered Firm if the operating income is $2,000,000 and corporate tax rate is 40%