Popstar, a record producer, is considering a restructuring to issue debt for its upcoming expansion project. Currently, Popstar has an annual EBIT of $975,000 for the foreseeable future. The following table shows different combinations (scenarios) of debt issued, and corresponding distress costs. The T-Bill yield is 3%, corporate tax rate is 40%, and the market risk premium is 7%.

Debt	Cost of Debt	PV of distress costs
0	0	-
$2,750,000	6%	$500,000
$4,500,000	7.5%	$2000,000

1.What is the value of the unlevered Popstar provided that the unlevered beta is 1?

2.What is the WACC of the firm in the no-leverage scenario presented in the table?

3.What are the values of the levered firm corresponding to the second and third row of the table (i.e., Debt = $2,750,000 and Debt = $4,500,000)?

4.As a financial analyst, what is your expert recommendation among the three scenarios Popstar is faced with? Why?

5.Consider a fourth possibility where Popstar would issue $5m of debt currently trading at par with 15% coupon payments. If the equity beta of the levered company is 2.8, what is value of the firm?

Only answer 4 and 5, thank you!!