The J$.$J$.$ Binks Company is an all$-$equity firm. It expects perpetual earnings before interest

and taxes $($EBIT$)$ of $$120$ million per year. Its equity required return is $20\%.$ The firm is subject

to a $25\%$ tax rate.

a$.$ Calculate the value of the un$-$levered J$.$J$.$ Binks?

b$.$ The company considers leveraging to increase the firm's value. With leveraging it will face

bankruptcy possibility at a cost of $$80$ million in exactly one year $($Assume a $20\%$ discount rate$).$

The company plans to issue debt and buy back shares with the proceeds. It considers the

following debt issuance: $$50m,$$$75m,$$$100m,125m,150m$ and $175m.$ These debt levels will

introduce an increasing probability of financial distress of $5\%,10\%,20\%,30\%,50\%$ and $70\%,$

respectively. Evaluate the J$.$J$.$ Binks optimal capital structure.