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:

Daniel Goleman

A psychologist known for his work on emotional intelligence and its importance in leadership and personal development.

Manage Emotions

The ability to recognize, understand, and control one's own feelings and to influence the emotions of others in a positive way.

Social Relationships

Connections between individuals or groups characterized by mutual expectations, shared engagements, or emotional bonds.

Emotional Competency

The ability to recognize, understand, manage, and reason with emotions in oneself and others to enhance thought and relationships.