Business, 06.04.2021 04:50 akfroggyman6591

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 40%, 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) 11.5%.
B) 10.8%.
C) 9.8%.
D) 13.0%.

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Luther Industries has no debt and expects to generate free cash flows of $48 million each year. Luth...

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