Capital structure tradeoff benefits and costs$$TK Implements is an unusual company that will operate for one$$ year, generate cash flow just$$ once, and then shut down. The value of TK Implements today is $$$$3,903,200,$ a figure which includes both the value of the$$ firm's equity and the value of its debt. TK equity has a $25\%$ expected return. Including principal and$$ interest, TK Implements will have $$$$1,590,000$ worth of debt due at the end of the year. There are no$$ taxes, and the$$ company's possible net operating profits for next year$$ are: $$$$2,650,000(25\%$probability$),$$$6,390,000(40\%$probability$),$ and $ $4,140,000(35\%$probability$).$

a$.$ Find the expected return on$$ TK$\text{'}$s debt? $($Hint$$: find the equity value first and subtract that from total firm$$ value.$)$

b$.$ Will bankruptcy costs affect$$ TK$\text{'}$s value?

c$.$ If TK were$$ unlevered, what would its expected return on equity$$ be$?$