No need to show steps of work. just the right solutions:

For example:

a)

1- Total cash flows to debt holders of unlevered firm =

2- Total cash flows to debt holders of levered firm =

Question 2 [9 points] A firm with a capital investment of $2,000,000 is financed solely through common shares and generates a steady stream of operating cash flows of $1,300,000 per year. The corporate tax rate is 43 percent, and the appropriate equity required return for the unlevered firm (Ru) is 20 percent. The firm considers raising $700,000 through debt at an interest rate of 15 percent, using the proceeds to retire outstanding equity by repurchasing shares. a) What are the total cash flows to debt holders for both unlevered and levered firms? Total cash flows to debt holders of unlevered firm = Total cash flows to debt holders of levered firm - b) What are the total cash flows to equity holders for both unlevered and levered firms? Total cash flows to equity holders of unlevered firm = Total cash flows to equity holders of levered firm = c) What are the total value of the unlevered and levered firms? Total value of unlevered firm Total value of levered firm d) What are the value of shareholder's equity of unlevered and levered firms? Value of shareholders' equity of unlevered firm = Value of shareholders' equity of levered firm = e) Should the firm take on the debt? Yes No