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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 $3.6 million. But
Backcountry Adventures is a Colorado-based outdoor travel agent that operates a series of backcountry huts. Currently, the value of the firm is $3.6 million. But profits will depend on the amount of snowfall: If it is a good year, the firm will be worth $5.4million, and if it is a bad year it will be worth $2.2 million. Suppose managers always keep the debt to equity ratio of the firm at 30%, and the debt is riskless.
Calculate the percentage change in the value of outstanding debt once the firm adjusts to its target debt-equity ratio.
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