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

EBIT	1,000
Interest expense	0
Income before tax	1,000
Taxes	400
Net income	$600

Approximately

$250,000

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?