Please answer the questions below from an investor perspective. (a) Please compute your total investment return each year if $0 million is struc- tured as debt and $10 million is equity. Is this higher or lower than the total return in the example above

(b) The company will go bankrupt if its EBIT is strictly less than interest expense. Assume that all value is destroyed in case of bankruptcy (you lose all your investment), so you will avoid bankruptcy at all costs. Your goal is to maximize your post-tax investment return. What is the optimal choice of debt-and-equity mix in your investment? And what would your total investment return be?

(c) In the real world, investors are savvy and adjust capital structures to avoid taxes whenever possible. Does the current taxation rules specifically, cor- porate taxes are only paid on post-interest-expense profits encourage higher or lower corporate leverage?