1. For this question, assume taxes, depreciation and amortization are always equal to zero. Consider an allequity firm with market capitalization equal to $10,000, earnings equal $600 per year, and with zero cash. a. What are the P/E and EV/EBITDA of the firm? The firm then decides to change its capital structure. It takes on $6,000 of debt and use all debt proceeds to buy back its own stock. The new debt is a perpetuity with interest rate equal to 3% per year. b. What are the P/E and EV/EBITDA of the firm after the capital structure change? c. Based on your answers to a) and b), explain why, compared to P/E ratios, EV/EBITDA is a conceptually superior valuation ratio.