Old School Corporation, an all equity firm has current EBIT of $1,000,000. It expects EBIT to increase at 5% per year forever. The corporate tax rate is 40%, and cost of unlevered equity is 12%. LTL is considering replacing some of the equity with perpetual debt. It has been determined that risk of bankruptcy is a function of amount of debt. PV of bankruptcy related costs will be $5,000,000. LTL is considering the following debt levels. Debt Probability of Bankruptcy $3,000,000 0.10 $6,000,000 0.30 $9,000,000 0.60 a. Determine the optimal level of debt, and the value of the firm at that level. b. If personal tax rate on stock income is 25%, and the personal tax rate on bond income is 43% at what debt level value of the firm be optimal? Old School Corporation, an all equity firm has current EBIT of $1,000,000. It expects EBIT to increase at 5% per year forever. The corporate tax rate is 40%, and cost of unlevered equity is 12%. LTL is considering replacing some of the equity with perpetual debt. It has been determined that risk of bankruptcy is a function of amount of debt. PV of bankruptcy related costs will be $5,000,000. LTL is considering the following debt levels. Debt Probability of Bankruptcy $3,000,000 0.10 $6,000,000 0.30 $9,000,000 0.60 a. Determine the optimal level of debt, and the value of the firm at that level. b. If personal tax rate on stock income is 25%, and the personal tax rate on bond income is 43% at what debt level value of the firm be optimal