Use the Information for the Question(s)below

question 69

Multiple Choice

Use the information for the question(s) below.
Luther Industries has no debt and expects to generate free cash flows of $48 million each year.Luther believes that if it permanently increases its level of debt to $100 million,the risk of financial distress may cause it to lose some customers and receive less favorable terms from its suppliers.As a result,Luther's expected free cash flows with debt will be only $44 million per year.Suppose Luther's tax rate is 21%,the risk-free rate is 6%,the expected return of the market is 14%,and the beta of Luther's free cash flows is 1.25 (with or without leverage) .
-The value of Luther without leverage is closest to:

• A)$315 million.
• B)$300 million.
• C)$205 million.
• D)$340 million.

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Definitions:

Epidermis

The outermost layer of the skin, which acts as a barrier to protect the body from the external environment.

Plasma Proteins

Proteins found in blood plasma that play roles in clotting, defense mechanisms, and transportation of substances in the blood.

Gum Inflammation

The swelling, redness, and bleeding of the gums, often a result of poor oral hygiene leading to gum disease or gingivitis.

Chewing

The act of breaking down food with teeth in preparation for swallowing and digestion.