You are given the following information for a company:

• EBIT = $4,500,000
• 30- year maturity, 3,000 semiannual coupon bonds with a coupon rate of 10% and a current market value of $1000 per bond.
• 20-year maturity, 2,000 annual coupon bonds with a coupon rate of 8%, traded at 100% of par value.
• Tax rate = 0.21
• Cost of unlevered equity R_U= 20%
• Corporate bond par value of $1,000 per bond, regardless of maturity

1. What is the value of the company's levered equity? (3 points)

2. What is the cost of levered equity (R_E)? (3 points)

3. What is the firm's WACC? (3 points)

4. Assuming that there is no cost of financial distress. If the firm wants to decrease the cost of levered equityR_Eto 20%, by how much should it increase or decrease debt? What is the new WACC? (3 points)