A firm will earn a taxable net return of $400 million next year. If it took on debt today, it would have to pay creditors an expected return based on the following formula:

E(r_Debt) = 3% + 7%*W_Debt.Further, assume that the financial markets will lend the firm capital at a cost of 11%, regardless of how the firm is financed.There are no costs of financial distress.The firm is in the 40% marginal tax bracket. If the firm is fully equity-financed, what is its value? Using APV, if the firm is financed with 60% debt today, what is its value? Assume the interest tax shield is discounted at the expected cost of debt.