1. You are interested in the value of Gemini Corporation and its cost of capital.
   1. First, suppose you believe that the assumptions of Miller-Modiglianis Proposition 1 (without taxes) are valid. Find the value of the company, the new cost of equity and the WACC if the currently unlevered company, valued at $2,400,000 issues debt of $850,000 at 7% interest rate. You can assume that the company uses this debt to repurchase stocks, and that the debt will be perpetual. Assume also that the initial cost of equity was 12%.
   2. Now assume that there are corporate taxes. Consider your answer with a corporate tax rate of 35%. You may assume that the value of the unlevered firm is still $2,400,000 even though taxes have gone from 0 to 35%.