Bruce & Co$.$ expects its EBIT to be $$100,000$ every year forever. The firm can borrow at $11$ percent. Bruce currently has no debt, and its cost of equity is $18$ percent. The tax rate is $31$ percent.

Given the above information;

a$)$ Complete the table given below for varying levels of debt below by using a mix of the given information and using your own computations.

EBIT $$100,000\mathrm{.}00$

Cost of debts $11\%$

cost of equity when unlevered $18\%$

Tax rate $31\%$

Debts $$0$ $$10,000\mathrm{.}00$ $$20,000\mathrm{.}00$ $$30,000\mathrm{.}00$

Cost of Equity when levered

Equity

D$/$E

Vu

VL

WACC

b$)$ Plot the results from the table into the following two graphs:

i$)$ Value of the firm vis$--$vis$-$ Total debt

ii$)$ Cost of capital of the firm vis$--$vis D$/$E ratio.

iii$)$ Which MM propositions have you demonstrated?