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:

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

a. $3 million?

b. $7 million?

c. $24 million?