2. Consider Table 1. Earnings before taxation. Corporate taxation (@ 25% Tax Rate) Earnings after taxation (a) (b) Income Statement (c) (d) Table 1 Assets Balance Sheet Assets 120 30 90 Total 300 Total 300 Consider Table 1 which outlines the Income and Balance Sheet statements for Firm A. Firm A is currently unlevered (i.e., has no debt financing). The required return on unlevered equity is 14%. Calculate the value of firm A. Liabilities and Shareholders Equity Equity 300 300 Consider Table 1. Suppose now that Firm A repurchases shares and issues debt so that its debt- to-equity ratio is 0.5. The cost of debt capital is 10%. Calculate the interest expense, earnings after interest and before taxes, the tax liability, earnings after interest and taxation, and the total cash flow to shareholders and bondholders for Firm A now that it has debt in its capital structure. Consider Table 1. Calculate the present value of the interest tax shield, the after-tax WACC, the required return on levered equity capital, and the value of the levered Firm A. Consider Table 1. Suppose now that personal taxes exist on debt and equity income at rates of 35% and 10%, respectively. Calculate the gain to leverage and the value of the levered Firm A given corporation and personal taxes.