Coinbase has 10 million shares outstanding with a share price of $10. Initially, it has no debt. Coinbases CFO decides to use permanent debt to raise cash to repurchase shares and exploit the benefits of the tax shield. However, the CFO also recognizes that higher debt increases the risk of financial distress. Based on simulations of the firms future cash flows, the CFO has made the following estimates (in millions of dollars). Debt 0 10 20 30 40 50 PV(Financial distress costs) 0 1 2 3.5 6 9 The corporate tax rate is 35%, the tax on investors interest income is 35%, and the tax on investors equity income is 20%. a. What is the effective tax advantage of debt? b. What is the present value of the tax shield at debt = $10million? c. Considering both financial distress costs and tax shield, what is the firms levered value after the leveraged recap at debt = $10million? d. What is the optimal level of debt? e. What is Coinbases stock price after the leveraged recap using the optimal level of debt? 4. Ant Financials stock price dropped for $5 after paying a special dividend of $10. Assume capital gain tax rate is 20% and dividend tax rate is 50%. An investor buys the share right before the ex-dividend date and immediately sells it after receiving the divided. a. What is the effective dividend tax rate? b. How much tax the investor needs to pay per share on her dividend income? c. How much total tax the investor needs to pay per share after considering both dividend and capital loss? d. How much profit the investor can make per share? e. According to your answer to question d., are there arbitrage opportunities? First answer yes or no, then explain. 5. Nuance Communications stock is trading for $10 per share. It has 10 million shares outstanding and a market debt-equity ratio of 1. Its debt is zero-coupon debt with a 10-year maturity and a yield to maturity of 10%. a. Describe