Owens Enterprises is in the process of determining its capital budget for the next fiscal year. The firm’s current capital structure, which it considers to be optimal, is contained in the following balance sheet:

Through discussions with the firm’s investment bankers, lead bank, and financial officers, the following information has been obtained:
■ The firm expects net income from this year to total $80 million. The firm intends to maintain its dividend policy of paying 42.25 percent of earnings to stockholders.
■ The firm can borrow $18 million from its bank at a 13 percent annual rate.  LO1