AARON ATHLETICS CURRENTLY HAS ZERO DEBT OUTSTANDING. Its earnings before interest and taxes (EBIT) are $100,000, and it is a zero-growth company. Aaron's current cost of equity is 10%, and its tax rate IS 40%. The firm has 20,000 shares of common stock outstanding selling at a price per share of $30.
The company uses the CAPM to estimate its cost of common equity, rs. The risk-free rate is 4 percent and the market risk premium is 6 percent. Aaron estimates that if it had no debt its beta would be 1.0. (Its "unlevered beta," bU, equals 1.0.) On this basis of information, what is the new total value of the firm?