M&M Inc. is a well-known candy maker in Mars, a planet where capital markets are perfect. M&M is an all-equity firm and is expected to earn an EBIT of $200,000 next year which then grows at 10% in perpetuity. The required rate of return on equity is 20%. 5a. Assuming no tax, what is the value of the firm? What is the WACC of M&M? (2 marks) 5b. Again assuming no tax, if M&M decides to use $500,000 debt at 12% to retire equity, what will be the WACC? How could a shareholder, who disagrees with this decision, undo the effects of debt using "homemade leverage"? (2 marks) 5c. If the corporate tax rate Tc is 40%, how much will be the addition to value due to the $500,000 debt? What is the WACC with Tc=40%? (2 marks) 5d. Now suppose M&M has a WACC of 10% instead. The company's cost of equity is 20% and its cost of debt is 12%. The corporate tax rate is 40%. What is M&M's debt/equity ratio now? (4 marks) 5e. Compare and contrast operating leverage and financial leverage. What are the implications of each for the financial manager? (3 marks) 5f. What is the lowest possible value for the DOL of a profitable firm (i.e., a firm with EBIT > 0)? Why? (2 marks) 5g. The Huskies Corporation currently sells gourmet dog food for $2 per can. The variable cost is $1.50 per can, and the packaging and marketing operation has fixed costs of $400,000 per year. Depreciation is $100,000 per year. What is the accounting break-even quantity? Ignoring taxes, what will be the increase in operating income if the quantity sold rises to 10 percent more than the accounting break-even quantity? (3 marks)