Use the Information for the Question(s)below

question 28

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 marginal tax rate of 35%,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:

Widespread Sweating

The release of sweat from sweat glands across much of the body's surface, typically in response to heat or stress.

Sympathetic

Pertaining to the part of the autonomic nervous system that prepares the body for stress by accelerating the heart rate, among other responses.

Sympathetic Impulses

Nerve impulses transmitted by the sympathetic nervous system, part of the autonomic nervous system that controls the body's responses to stress or emergency situations.

Angry

A strong emotional state or reaction characterized by annoyance, displeasure, or hostility.