Q5. Firm XYZ is currently financed entirely with equity that has a total market value of $100 million. Management is considering a debt-for-equity swap to add leverage to the firm's capital structure. Management recognizes two factors that would affect the value of the firm as leverage is added. First, the addition of permanent debt in the amount of would provide a tax shield that has a value of where for firm XYZ, =0.34. The second, and offsetting, factor is the present value of expected costs of future financial distress, i.e., E[(CFFD)], associated with debt, PV[ E( )], which increases at an accelerating rate with leverage. Management decides that the relationship of PV[ E( )], to leverage can be approximated with the following equation: PV[ E( )], = 2, where = 0.005. Given these specifications, find the value of debt, , that maximizes the value of the firm. What is the firm's debt ratio, and what is the market value of the firm if it has the optimal amount of debt?