Find the initial amount of? debt

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Backcountry Adventures is a? Colorado-based outdoor travel agent that operates a series of backcountry huts.? Currently, the value of the firm is $3.8 million. But profits will depend on the amount of? snowfall: If it is a good? year, the firm will be worth $5 ?million, and if it is a bad year it will be worth $2.1 million. Suppose managers always keep the debt to equity ratio of the firm at 30%?, and the debt is riskless.

a. What is the initial amount of? debt?

b. Calculate the percentage change in the value of the? firm, its equity and its debt once the level of snowfall is? revealed, but before the firm adjusts the debt level to achieve its target debt to equity ratio.

c. Calculate the percentage change in the value of outstanding debt once the firm adjusts to its target? debt-equity ratio.

d. What does this imply about the riskiness of the? firm's tax shields. Explain

Reference no: EM132654767

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