A firm with no debt financing has a firm value of $20 million. It has a corporate marginal tax rate of 34 percent. The firms investors are estimated to have marginal tax rates of 31 percent on interest income and a weighted average of 28 percent on stock income. The firm is planning to change its capital structure by issuing $10 million in debt, and repurchasing $10 million of common stock.

a. According to MM with corporate taxes, what is the value of the levered firm?

b. According to Miller with corporate and personal taxes, what is the gain from leverage?