4. Assume no taxes or bankruptcy costs. When a firm issues debt, why does the expected return on the firm's assets remain fixed, while the expected return on equity changes? Why is it not the other way round? (Hint: Think about the type of risks the two returns reflect.) 5. Last year Nike paid out $31 million as debt interest. How much more would Nike have paid in taxes if the firm was entirely equity financed? What is the present value of Nike's interest tax shield if (a) Nike planned to keep borrowing permanently at last years; (b) it intended to eliminate all debt after one year. Assume an interest rate 8% and a corporate tax rate of 35%. 4. Assume no taxes or bankruptcy costs. When a firm issues debt, why does the expected return on the firm's assets remain fixed, while the expected return on equity changes? Why is it not the other way round? (Hint: Think about the type of risks the two returns reflect.) 5. Last year Nike paid out $31 million as debt interest. How much more would Nike have paid in taxes if the firm was entirely equity financed? What is the present value of Nike's interest tax shield if (a) Nike planned to keep borrowing permanently at last years; (b) it intended to eliminate all debt after one year. Assume an interest rate 8% and a corporate tax rate of 35%