Empire Industries forecasts net income this coming year as shown below$($in thousands of$$ dollars$)$:

EBIT

$$$$1$ comma $000$

Interest expense

$0$

Income before tax

$$$$1$ comma $000$

Taxes

negative $210$

Net income

$$$nbsp $790$

Approximately $ $200$ comma $000$ of$$ Empire's earnings will be needed to make$$ new, $$positive$-$NPV investments.$$ Unfortunately, Empire's managers are expected to waste $10\%$ of its net income on needless$$ perks, pet$$ projects, and other expenditures that do not contribute to the firm. All remaining income will be distributed to shareholders.

a$.$ What are the two benefits of debt financing for$$ Empire?

b$.$ By how much would each $ $1$ of interest expense reduce$$ Empire's distributions to$$ shareholders?

c$.$ What is the increase in the total funds Empire will pay to investors for each $ $1$ of interest$$ expense?

Question content area bottom

Part $1$

a$.$ What are the two benefits of debt financing for$$ Empire? $($Select the best choice$$ below.$)$

A$.$

Interest cost benefits and reducing wasteful investment

B$.$

Tax and interest cost benefits

C$.$

Dividend and tax benefits

D$.$

Tax benefits and reducing wasteful investment

Your answer is correct.

Part $2$

b$.$ By how much would each $ $1$ of interest expense reduce$$ Empire's distributions to$$ shareholders?

Each $ $1$ of interest expense would reduce$$ Empire's distributions to shareholders by $$$

$$

$0\mathrm{.}711.($Round to three decimal$$ places.$)$

Part $3$

c$.$ What is the increase in the total funds Empire will pay to investors for each $ $1$ of interest$$ expense?

The increase in the total funds Empire will pay to investors for each $ $1$ of interest expense is $$$

$$

enter your response here. $($Round to three decimal$$ places.$)$