?(Computing interest tax? savings) ?Presently, H.? Swank, Inc. does not use any financial leverage and has total financing equal to ?$1.3 million. It is considering refinancing and issuing ?$512,000 of debt that pays 5.3 percent interest and using that money to buy back half the? firm's common stock. Assume that the debt has a 30?-year maturity such that Swank will have no principal payments for 30 years. Swank currently pays all of its net income to common shareholders in the form of cash dividends and intends to continue to do this in the future. The corporate tax rate on the? firm's earnings is 35 percent. ?Swank's current income statement? (before the debt? issue) is shown? here:

Earning before interest and taxes (EBIT)	$146,000
Less: Interest expense	0
Equals:Earnings before taxes	$146,000
Less: Taxes at 35%	(51,000)
Equals: Net Income	$94,900

a. If Swank issues the debt and uses it to buy back common? stock, how much money can the firm distribute to its stockholders and bondholders next year if the? firm's EBIT remains equal to $146,000??

b. What are? Swank's interest tax savings from the issuance of the? debt?

c. Are? Swank's stockholders better off after the debt? issue?

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a. The amount that Swank can distribute is ?$____. ?(Round to the nearest? dollar.)

b. The? firm's interest tax savings are ?$____. (Round to the nearest? dollar.)

c. Are? Swank's stockholders better off after the debt? issue???(Select the best choice? below.)

A.The debt issue makes? Swank's stockholders? "worse off" because it decreases the? firm's return on equity from 9.80 % to 7.30 %.

B.The debt issue makes? Swank's stockholders? "better off" because it increases the? firm's return on equity by 7.30%.

C.The debt issue makes? Swank's stockholders? "better off" because it increases the? firm's return on equity by 9.80%.

D.Whether or not the debt issue makes? Swank's stockholders? "better off" depends on their risk tolerance.