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:

Well-Being

A state of health, happiness, and prosperity, reflecting physical, emotional, and psychological welfare.

Developmental Process

The sequence of growth or evolution of a living organism or a part of an organizational or conceptual entity.

Self-Organization

The process by which internal regulation or order emerges within a system or organism without being directed by an external control.

Reed

A type of tall, slender-leaved plant of the grass family, often found in wetlands or water, or a flexible woody stem used in making musical instruments.