Question 43 (10 points) Delta Co would like to analyze its capital structure and assess whether it should add more debt to its capital. The current market value of debt of the firm is $900 million and the current market value of equity is $1,900 million. The firm has an EBIT of $150 million and faces a tax rate of 30%. The company's bonds are rated AA and the cost of debt is 6%. Currently, the firm has a probability of default of 2.8% and a bankruptcy cost which is 20% of the current value of the firm. a. Estimate the unlevered value of the firm [4 marks] b. Estimate the levered value of the firm, at a debt ratio of 40% of the current firm value. At that debt ratio, the firm's bond rating will be BBB, and the probability of default will increase to 38% while the bankruptcy cost will remain at 20% of the current firm value. [3 marks] c. Should the firm change its debt ratio to 40%? Why or why not? In a few words, describe a capital restructuring strategy that the firm can use to achieve this new debt ratio. [3 marks]