Backcountry Adventures is a Colorado-based outdoor travel agent that operates a series of winter backcountry huts. Currently, the value of the firm...

Backcountry Adventures is a Colorado-based outdoor travel agent that operates a series of winter backcountry huts.  Currently, the value of the firm (debt + equity) is $3.5 million. But profits will depend on the amount of snowfall: If it is a good year, the firm will be worth $5 million, and if it is a bad year it will be worth $2.5 million.  Suppose managers always keep the debt to equity ratio of the firm at 25%, and the debt is riskless.