Wave Exteriors Inc. has an unlevered cost of equity is 12% and a pre-tax cost of debt of 6%. Both the book and the market value of debt is $500,000. Earnings before interest and taxes (EBIT) are $200,000 (constant in perpetuity) and the tax rate is 40%. Assume there is no cost of financial distress.

a)What is the value of the unlevered company? (2 marks)

b)What is the value of the levered company? (2 marks)

c)What is the cost of levered equity? (4 marks)

d)What is the company's weighted average cost of capital?(2 marks)

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