16. Assume that all of the facts from the prior problem set hold, except that both corporate and personal income taxes apply. Assume as in Problem Set 8 that both firms face a corporate income tax rate (T) of 30%; however, also assume that: (i) investors of both firms face a marginal personal tax rate on debt income (TP TPDPD of 34% and a marginal personal tax rate on stock income (TPS) of 20%; (ii) the firms must put all after- tax equity and debt cash flows out to bid by investors in order to determine their market values; (iii) firm U will put a $10,000 before-tax cash flow to bid, and firm L will put a before-tax $7,000 equity cash flow and a $3,000 before-tax debt cash flow to bid; (iv) the equilibrium required rate of return on equity (ke) for firm U is 15% and for firm L is 19.091%, and that these rates are the appropriate equity capitalization rates to use on equity earnings after corporate and personal income taxes are paid (or the rate that equity investors will use to determine EU and EL) (v) the equilibrium required rate of return on debt for firm L(ki) is 10%, and that this is the rate that debt investors will use to determine the market value of the debt after personal taxes are paid; a. What is the value of the unlevered firm? b. What is the value of the levered firm? c. What is the gain from leverage in this situation? (Hint: this can be determined by VLVU) d. Use the Miller model as well as the market value of the debt you calculated in (b) to determine the present value of the debt tax shield and to check your answer in (c). e. What if the marginal tax rate on stock income and the marginal tax rate on debt income are both equal to 34%(TPS=TPD=34%). Now, what are the values of the unlevered firm, the levered firm and the gain from leverage? f. Use the Miller model as well as the market value of the debt you calculated in (b) to determine the present value of the debt tax shield and to check your answer in (e)