1. Burtronics Inc. is in the process of determining its optimal level of debt. Burtronics is a zero growth firm with all of its net income paid in dividend. Complete the following table, and recommend the optimal debt level for Burtronics. Make sure to show all your work, restrict your answers to the alternatives given, and justify your answer.

Debt level*	$400,000	$700,000
Cost of debt	9%	12%
Cost of equity	12%	15%
EBIT	$200,000	$200,000
Interest Expenses	$36,000	$ 84,000
EBT	$164,000	$ 116,000
Taxes (40%)	$65,600	$ 46,400
EAT	$98,400	$ 69,600
Value of equity	$820,000	$ 580,000
Value of debt	$	$700,000
Value of the Burtronics
Stock price	$
Shares outstanding	16,000

• The difference of $300,000 in debt will be used to repurchase shares.