CU Corporation decides that it can make zippers at night for one period and will have cash flows next period of $210 if the economy is favourable, and $66 if the economy is unfavourable. One- third of these proceeds must be paid out in taxes if the firm is all equity financed; however, because of the tax advantage of debt, the company saves $0.05 in taxes for every $1.00 of debt financing that it uses. Assume investors are risk neutral, the discount rate is 10 percent per period, and the probability of each state is 0.5. Also assume that if CU Corporation goes bankrupt and debt holders take over, the 1legal fees and other bankruptcy costs total $20. a) If CU organizes his firm as all equity, what will it be worth? (9 Marks) b) Suppose CU sold a zero-coupon bond worth $44 at maturity next period. How much would the firm receive for the debt? (3 Marks) c) With the debt level above, how much would the equity be worth? And how much would the firm be worth? (8 Marks) CU Corporation decides that it can make zippers at night for one period and will have cash flows next period of $210 if the economy is favourable, and $66 if the economy is unfavourable. One- third of these proceeds must be paid out in taxes if the firm is all equity financed; however, because of the tax advantage of debt, the company saves $0.05 in taxes for every $1.00 of debt financing that it uses. Assume investors are risk neutral, the discount rate is 10 percent per period, and the probability of each state is 0.5. Also assume that if CU Corporation goes bankrupt and debt holders take over, the 1legal fees and other bankruptcy costs total $20. a) If CU organizes his firm as all equity, what will it be worth? (9 Marks) b) Suppose CU sold a zero-coupon bond worth $44 at maturity next period. How much would the firm receive for the debt? (3 Marks) c) With the debt level above, how much would the equity be worth? And how much would the firm be worth? (8 Marks)