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The firm originally is 100% financed by equity (Unlevered firm). The EBIT for the firm is $20,000. The cost of capital for this unlevered firm

The firm originally is 100% financed by equity (Unlevered firm). The EBIT for the firm is $20,000. The cost of capital for this unlevered firm is 10%. The tax rate is 40%. Systematic risk of the asset is 2. Now assuming that the firm issues $15,000 debt to buy back some shares (Levered firm), and the debts are traded at par value. Assuming that the cost of debt =8%.

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