Suppose the corporate tax rate is 40 %. Consider a firm that earns $ 3,000 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 8 %.
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 $ 500 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?