Use the Information for the Question(s)below

question 89

Multiple Choice

Use the information for the question(s) below.
Suppose Luther Industries is considering divesting one of its product lines.The product line is expected to generate free cash flows of $2 million per year,growing at a rate of 3% per year.Luther has an equity cost of capital of 10%,a debt cost of capital of 7%,a corporate tax rate of 21%,and a debt-equity ratio of 2.This product line is of average risk and Luther plans to maintain a constant debt-equity ratio.
-Luther's unlevered cost of capital is closest to:

• A)8.0%.
• B)8.5%.
• C)9.0%.
• D)6.4%.

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Definitions:

Births Equals Deaths

A demographic state where the number of births in a population is equal to the number of deaths, resulting in zero population growth.

Demographic Transition

The transition from high birth and death rates to lower birth and death rates as a country or region develops from a pre-industrial to an industrialized economic system.

Education

The process of facilitating learning, or the acquisition of knowledge, skills, values, beliefs, and habits through various methods such as teaching, training, storytelling, discussion, and directed research.

Medical Care

Professional health services provided by doctors and nurses to diagnose, treat, and prevent illness, injury, and other physical and mental impairments.