$1.$ Explain why raising the level of debt when the debt$-$equity ratio is low often benefits the company and lowering the level of debt when the ratio is high.

$2.$ In this question, investors are risk$-$neutral, and the risk$-$free interest rate is $0.$ Suppose a company has a $1/3$ chance of being worth $$200,$ $$400,$ and $$600$ a year from now but will need to pay $50\%$ of this value in taxes. Also, there is a $$100$ cost to financial distress. Both interest payments and the cost of financial distress are tax deductible.

Does D$=0,150$ or $200$ maximize the total firm value?

Note that in the event of financial distress, the financial distress costs have the highest priority.