Suppose the corporate tax rate is 35 % . Consider a firm that earns $2,500 before interest and taxes each year with no risk.

Suppose the corporate tax rate is . Consider a firm that earns before interest and taxes each year with no risk. The​ firm's capital expenditures equal its depreciation expenses each​ year, and it will have no changes to its net working capital. The​ risk-free interest rate is .

a. Suppose the firm has no debt and pays out its net income as a dividend each year. What is the value of the​ firm's equity?

b. Suppose instead the firm makes interest payments of

per year. What is the value of​ equity? What is the value of​ debt?

c. What is the difference between the total value of the firm with leverage and without​ leverage?

d. The difference in ​(c​) is equal to what percentage of the value of the​ debt?