Aaron Corp. is all-equity financed and expects zero growth. The expected EBIT = $500,000, Tax rate = 40%, 100,000 shares outstanding. If the company recapitalizes, debt would be issued to repurchase stock.

Debt Percent (W_d) Equity Percent (W_e) Before-tax cost of debt (r_d)

0.30 0.70 8.3%

The company uses the CAPM to estimate its cost of common equity. The risk-free rate is 5 percent and the market risk premium is 6 percent. Its unlevered beta, b_U, equals 1.6. What is the companys tock price at the optimal capital structure?