Problem 2 ( continued ) bonus | 16 points ) Frito decides it will raise the $2 . 7 million though one year debt financing his lead of the very .\\ Capital ( Series D ) financing . Assume the pre-money valuation of the firm in part a ) is the value of thing equity . If the corporate tax rate is 40% , the expected costs of financial distress are $ 4 million with a 7nor probability of occurring , and the debt cost is the risk free rate of 5% ( with a debt beta of zero ) - what ic the private equity valuation per share and the value of the founder's ( Frito's ) stake ( Series A ) worth after the debt issue ? ( Hint : assume the risk free rate to discount the financial distress costs ) . f ) 16 points ) While still private , Frito would someday like to be a public firm and pay dividends once they are established , reduce their R &D costs and have revenue generating patent protected drugs . Explain The Clientele effect Frito should consider regarding dividends . Is your explanation consistent with Miller and Modigliani's dividend preference theory ?"