Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero-growth firm and pays out all of its earnings as dividends. The firms EBIT is $11.77 million, and it faces a 37.95% federal-plus-state tax rate. The market risk premium is 4.55%, and the risk-free rate is 6.95%. BEA is considering increasing its debt level to a capital structure with 39.15% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 9.00%. BEA has a beta of 1.03.

c. What are BEAs total value of the firm with 39.15% debt?

Answer choices

$79.20 million

$61.43 million

$74.02 million

$65.13 million

$76.98 million