Question: Please answer, very urgent Use Miller's Model in capital structure theory to answer this question. ABC Company has a constant EBIT that is expected to

Please answer, very urgent

Use Miller's Model in capital structure theory to answer this question.

ABC Company has a constant EBIT that is expected to continue in perpetuity.The value of ABC Company when it does not have any debt is $500,000.The unlevered cost of equity (R₀) for the company is 10% and the corporate tax rateis 35%. The personal tax rate on equity income is 40% and the personal tax rate on bond income is 22%.

(a)If the company issues a perpetual bond with a market value of $400,000,

(1)what is the value of the company with leverage and with no financial distress cost?

(2)for every dollar of debt, is there a gain or loss from leverage for the company? If yes, what is this gain/loss from leverage for every dollar of debt?

(b)If all of the above remains constant except for the personal tax rate on bond income (T_B), what

T_B would make the company have zero gain from the leverage of $400,000?

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