Comfort Shoe Company has decided to spin off its Samba Dance Shoe Division as a separate entity in the United Kingdom. The assets of the Samba Dance Shoe Division have the same operating risk characteristics as those of Comfort. The capital structure of Comfort has been 50% debt and 50% equity in terms of market values, and is considered by management to be optimal. The required return on Comfort's assets (if levered) is 20.2% per year, and the interest rate that the firm (and the division) must currently pay on their debt is 10% per year. Sales revenue for the Samba Shoe Division is expected to remain indefinitely at last year's level of 10 million. Variable costs are 55% of sales. Annual depreciation is E1 million, which is exactly matched each year by new investments. The corporate tax rate is 30%. a) How much is the Samba Shoe Division worth in unlevered form? Explain the logic of your answer b) If the Samba Shoe Division is spun off with 5 million in debt, how much would it be worth? Explain the logic of your answer c) What rate of return will the shareholders of the Samba Shoe Division require? d) If the riskless interest rate is 3%, find the geared beta for the parent company and discuss its relevance as a risk measure. The market risk premium is 5%. e) Describe the relationships among leverage, cost of capital and risk in the context of Modigliani&Miller theory. Also discuss other factors which might affect the optimal" debt financing levels of a firm