Backcountry Adventures is a Colorado$-$based outdoor travel agent that operates a series of backcountry

huts. Currently, the value of the firm is $$3\mathrm{.}6$ million. But profits will depend on the amount of snowfall: If it is a

good year, the firm will be worth $$5\mathrm{.}2$ million, and if is a bad year it will be worth $$2\mathrm{.}4$ 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.