Task #$2($Interest tax shield with corporate and personal taxes$).$ Markum Enter$-$

prises is considering permanently adding $$100$ million of debt to its capital structure. Markum's

corporate tax rate is $25\%.$

a$)$ Absent personal taxes, what is the value of the interest tax shield from the new debt?

b$)$ If investors pay a tax rate of $37\%$ on interest income, and a tax rate of $20\%$ on income

from dividends and capital gains, what is the value of the interest tax shield from the new debt?

Task #$3($The Agency Costs of Leverage$).$ Petron Corporation's management team

is meeting to decide on a new corporate strategy. There are four options, each with a different

probability of success and total firm value in the event of success, as shown below:

Assume that for each strategy, firm value is zero in the event of failure.

a$)$ Which strategy has the highest expected payoff?

b$)$ Suppose Petron's management team will choose the strategy that leads to the highest

expected value of Petron's equity. Which strategy will management choose if Petron currently

has