Problem:
Eccles Inc., a zero growth firm, has an expected EBIT of $120,000 and a corporate tax rate of 35%. Eccles uses $500,000 of 12% debt, and the cost of equity to an unleveled firm in the same risk class is 16%.
Required:
Question 1: What is the value of the firm according to the MM with corporate taxes?
Question 2: What is the firm's cost of equity?
Question 3: Assume that the firm's gain from leverage according to the Miller model is $130,000. If the effective personal taxe rate on stock income is Ts = 25%, what is the implied personal tax rate on debt income?
Note: Please show basic calculation