ABC Corp is examining its capital structure with the intent of arriving at an optimal debt ratio.

It currently has no debt and has a beta of 1.2. The riskless interest rate is 8%.

Your research indicates that the debt ratio will be as follows at different debt levels:

D/(D+E)	Rating	Interest (%)
0	AAA	10
0.1	AA	10.5
0.2	A	11
0.3	BBB	12
0.4	BB	13
0.5	B	14
0.6	CCC	16
0.7	CC	18
0.8	C	20
0.9	D	25

The firm currently has 1 million shares outstanding at $18 per share and tax rate is 40%.

a. What is the firm's optimal debt ratio?

b. Assuming that the firm restructures by repurchsing stock with debt, what will be the value of stock be after the restructure?