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 $5.4 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 25%, 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. O A. Initially the firm's debt is $2.36 million, and the equity is $4.32 million. B. Initially the firm's debt is $2.36 million, and the equity is $3.04 million. O C. Initially the firm's debt is $0.76 million, and the equity is $1.68 million. OD. Initially the firm's debt is $0.76 million, and the equity is $3.04 million. 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. Calculate the changes in values before recapitalization: (Round to one decimal place.) Good state Bad state Change in firm value (%) Change in equity value (%) Change in debt value (%) c. Calculate the percentage change in the value of outstanding debt once the firm adjusts to its target debt-equity ratio. Calculate the changes in values after recapitalization: (Round to one decimal place.) Good state Bad state Change in firm value (%) Change in equity value (%) Change in debt value (%) d. What does this imply about the riskiness of the firm's tax shields. Explain. (Select all the choices that apply.) A. Because the debt is riskless, the only risk to the tax shields is the amount of outstanding debt. B. Because the equity is riskless, the only risk to the tax shields is the amount of outstanding equity. C. This risk is identical to the risk of the market as a whole, so the riskiness of the tax shields are identical to the riskiness of the market as a whole. D. This risk is identical to the risk of the firm as a whole, so the riskiness of the tax shields are identical to the riskiness of the firm as a whole