Only answer the subpart b) please!   Show calculation steps A firm is solely financed by equity with market value of $50,000 and cost of equity of 10%. It wishes to raise another $30,000 via corporate bonds with cost of debt of 5% and use all of it to buy back outstanding equity (no cash holding). Hold investment policies fixed.   a)In a MM world without taxes, What would the firm value be after debt issuance? Firm Value = Equity Value + Debt Value - Cash. What would be the cost of equity after debt is raised? What would be the WACC after debt is raised?                          b)In a MM world with tax rate of 40%, What would be the cost of equity after debt is raised? What would be the additional value created by debt? What would be the WACC after debt is raised?

Reynolds Computer Service offers data processing services to retail clothing stores. The following data have been collected to aid in the preparation of adjusting entries for Reynolds Computer Service for the current year: Computer equipment was purchased from IBM 3 years ago at a cost of $540,000. Annual depreciation is $132,500. A fire insurance policy for a 2-year period beginning on September 1 was purchased from Good Hands Insurance Company for $12,240 cash. The entire amount of the prepayment was debited to prepaid insurance. (Assume that the beginning balance of prepaid insurance was $0 and that there were no other debits or credits to that account during the year.) Reynolds has a contract to perform the payroll accounting for Dayton’s Department Stores. On December 31, $5,450 of services have been performed under this contract but are unbilled. Reynolds rents 12 computer terminals for $65 per month per terminal from Extreme Terminals Inc. At December 31, Reynolds owes Extreme…

3. Toran plc. is an all-equity financed firm and generates earnings of £200 per year. Its current required rate of return on equity is 10% per annum. It is planning to issue corporate debt at a rate of 8% to achieve a debt-equity ratio of 50%. Toran plc. Assume that debt and earnings are perpetuities. What happens to the firm value after the debt issuance? Assume there are perfect capital markets. 100 0 200 0 250 0 400 0 450 0

Suppose the profitable company, Hermes, Inc., previously calculated its external financing needs (EFN) to be $18,200,000. What will happen to the EFN if management now decides to decrease the dividend payout ratio from 35.00% to 25.00%? (1) It will increase to some value greater than $18,200,000. (2) It will fall to some value lower than $18,200,000. (3) It will remain at $18,200,000. (4) The answer depends on Hermes, Inc.’s growth rate in sales. (5) The answer depends on Hermes, Inc.’s profit margin.