1. RubberDuck Inc. is a startup company that produces rubber toys. RubberDuck has constant free cash flows of USD 3.50 million. It maintains a debt-equity ratio of 0.40. Suppose RubberDuck's unlevered equity cost of capital is 14.00%. The relevant tax rate is 30.00%. RubberDuck's debt is risk free, and the risk-free interest rate is 7.00%. a) What is RubberDuck's levered cost ef equity (rE) ? b) If you assume there are no taxes, what is the unlevered value of RubberDuck (using the pretax WACC=ru )? How would the value of RubberDuck change if it chooses to increase the debt-equity ratio (no computation needed)? c) Given the relevant tax rate, what is its after-tax weighted average cost of capital? d) What is the current value of the firm and what is the total value of the interest tax shield? e) Assume the firm has an outstanding 3-year loan of USD 300,000 at the bank, which is paid back at the end of the third year and for which it pays the risk-free rate of 7.00% as interest rate per year. What is the annual tax shield of the loan and what is the present value of the tax shield of the loan today? f) Under the given tax regime, how would the value of RubberDuck change if it chooses to increase the debt-equity ratio and why (no computation needed)? g) BONUS Question (2pt): Explain what the optimal level of leverage for RubberDuck would be from a tax saving perspective and the risks associated with finding the opti