The Teenie Tiny Company is currently an un-levered firm with a beta of 1.3925. Since this is a start-up company with significant impact on the social well-being of the country, the firm was given a tax-exempt status for the first five years of operation. In the market, you observe that the latest Government of Canada T-bill issue is yielding 3% and the market risk premium is 8%. Assume EBIT of $800,000. Assume that there is no cost for the risk of default (all debt will be issued with a 5% coupon interest rate. (23 marks)

1. If the firm issues $750,000 in debt, calculate the total value of the firm, cost of equity, and the WACC, Show your work! (8 marks)
2. If the firm issues $2,000,000 in debt, calculate the total value of the firm, cost of equity, and the WACC. Show your work! (8 marks)
3. Graph the results of your calculations. (2 marks)