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:

Moral Transgressions

Actions or behaviors that violate ethical, moral, or social norms, often resulting in disapproval or punishment.

Moral Development

The process by which individuals develop understandings of what is right and wrong, influencing their behavior and social interactions.

Subjective Sense

An individual's personal perspective or interpretation of experiences, feelings, or beliefs.

Me-Self

William James's term for the conscious sense of personal identity that comprises the self as known or the collection of subjective experiences.