Use the Information for the Question(s)below

question 21

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 with leverage is closest to:

• A)$296 million.
• B)$340 million.
• C)$205 million.
• D)$300 million.

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Definitions:

Elimination Status

A term used in healthcare to describe the regularity, consistency, and overall condition of an individual's bowel and bladder output.

Bowel And Bladder Program

A routine that helps people who have difficulty controlling bowel or bladder function manage their condition and prevent complications.

Hypertension

A chronic medical condition characterized by elevated blood pressure in the arteries, which requires the heart to work harder than normal.

Arterial changes

Modifications or alterations in the arteries, often related to aging, disease processes, or lifestyle factors, affecting blood flow and cardiovascular health.