(a) Suppose we are at the end of 2019. All cash flows arrive at the end of each year. The first cash flow arrives at the end of 2020. Firm C will have EBIT in 2020 of $210 million. Capital expenditures will be $40 million in 2020. Depreciation will also be $40 3 million in 2020. The increase in net working capital, the increase in net other assets, and operating lease interest will be zero in 2020. The marginal corporate tax rate is and will be 15% in every year. Firm C's WACC at its current capital structure is and will be 8%. The expected permanent growth rate of Firm C's free cash flow and EBIT is 4% per year. Amortization will be zero in 2020 and every future year so that EBITA will equal EBIT. Currently, Firm C is an all equity firm and has no debt. It could borrow at an interest rate of 6%. Assume that the marginal personal tax rate for equity income is and will be 20%, and the marginal personal tax rate for debt (interest) income is and will be 25%. Assume that all investors are taxable and all investments are made in taxable accounts (so there are no tax-exempt investors and no investments in tax-deferred accounts). In a world in which the only deviation from perfect capital markets is the existence of taxes, should Firm C choose a leverage ratio (D/(D+E)) above 80% at the end of 2019 if Firm C chooses its leverage ratio to maximize its firm value? Assume that all interest payments have to be made at the end of each year and the first interest payment would have to be made at the end of 2020. Assume that any interest expense that cannot be used to reduce corporate taxes in the year it is paid cannot be used to reduce corporate taxes in any past or future year either. Ignore the limits on the tax deductibility of interest imposed by the Tax Cuts and Jobs Act of 2017. Explain your reasoning carefully and show your calculations.

(b) (5) Would your answer change if the marginal personal tax rate for debt (interest) income is and will be 15%, but all other assumptions are the same as above? Why or why not? Explain your reasoning carefully. No calculations are needed here