Use the Information for the Question(s)below

question 89

Multiple Choice

Use the information for the question(s) below.
Suppose Luther Industries is considering divesting one of its product lines.The product line is expected to generate free cash flows of $2 million per year,growing at a rate of 3% per year.Luther has an equity cost of capital of 10%,a debt cost of capital of 7%,a corporate tax rate of 21%,and a debt-equity ratio of 2.This product line is of average risk and Luther plans to maintain a constant debt-equity ratio.
-Luther's unlevered cost of capital is closest to:

• A)8.0%.
• B)8.5%.
• C)9.0%.
• D)6.4%.

---

Definitions:

Measurement Strategy

A plan to assess the effectiveness and impact of a particular effort or campaign, using specific metrics and tools.

Jargon

Specialized language or terminology used by a particular group or profession, often difficult for outsiders to understand.

Budget

An estimate of income and expenditure for a set period of time.

Measurement Strategy

A plan or approach designed to quantify processes, outputs, or outcomes, enabling assessment and improvement.