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Suppose the corporate tax rate is 40 %. Consider a firm that earns $ 1,000 in...

Suppose the corporate tax rate is 40 %. Consider a firm that earns $ 1,000 in earnings 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 4%. 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 $ 400 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. To what percentage of the value of the debt is the difference in part ​(c​) ​equal?

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