Apple Corporation had no debt on its balance sheet in 2008, but paid $2 billion in taxes. Suppose Apple were to issue sufficient debt to reduce its taxes by $1 billion per year permanently. Assume Apple's marginal corporate tax rate is 35% and its borrowing cost is 7.5%.

a. If all of Apple's investors do not pay personal taxes (because they hold their Apple stock in tax-free retirement accounts), how much value would be created (what is the value of the tax shield)? How much debt would need to be issued?

b. Quantitatively, how does your answer change if instead you assume that Apple's investors pay a 15% tax rate on income from equity and a 35% tax rate on interest income?

c. Assume that Apple's investors pay a 15% tax rate on income from equity. Is there a personal tax rate on interest income for which the value of the interest tax shield becomes zero?