1. Identify the advantage and disadvan- tage of financial leverage. Illustrate this point in the context of a levered com- pany with $100,000 of assets financed by $45,000 of debt at 5% interest and $55,000 of equity in comparison to an unlevered company under the assump- tion that the assets generate a return of (a) 10% in a good year and (b) -10% in a bad year. 3. Explain why the tax deductibility of interest is an advantage in financing a company. Then illustrate the effect with a company worth $600,000, divided into $250,000 of equity and $350,000 of debt at 4.2% interest. Compare the value of the firm to the alternative of having zero debt under an expected net operating income of $75,000, a risk-free rate of 4%, and a tax rate of 34%