please solve parts a and b clearly and take clear photo of solution providing all necessary explanation and calculation

7. (15 points) Your firm is considering issuing one-year debt, and has come up with the following estimates of the value of the interest tax shield and the probability of distress for different levels of debt: (a) Suppose the firm has a beta of zero, so that the appropriate discount rate for financial distress costs is the risk-free rate of 5%. Which level of debt above is optimal if, in the event of distress, the firm will have distress costs equal to: i. $2 million? ii. $5 million? 4 iii. \$25 million? Given your answers, make a conclusion about how optimal debt levels vary with the probability of financial distress and distress costs? Hint: compare the tax benefit of debt with the expected costs of default. (b) Now suppose that the government is considering a reform that will reduce the corporate tax rate. If interest expenses remain tax deductible, how do you think this reform would affect the optimal debt ratios of companies