Tool Manufacturing has an expected EBIT of £35,000 in perpetuity and a tax rate of 28 per cent. The firm has £70,000 in outstanding debt at an interest rate of 9 per cent, and its unlevered cost of capital is 14 per cent. What is the value of the firm according to MM Proposition I with taxes? Should Tool change its debt–equity ratio if the goal is to maximize the value of the firm? Explain.