The current market value of the all equity firm Hugh Sweets Shops is $21.5 million.
a. If there are no taxes and the EBIT is $2,633,750, what is the cost of equity? What is the WACC?
b. If the tax rate is 40%, what is the EBIT if the unlevered cost of equity is 12.25%? What is the WACC?
(Assume there is no cost of financial distress and general M&M assumptions apply)