Estimate marpor value without leverage

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Marpor Industries has no debt and expects togenerate free cash flows of $16 million each year. Marporbelieves that if it permanently increases its level of debt to $40million, the risk of financial distress may cause it to lose somecustomers and receive less favorable terms from itssuppliers. As a result, Marpor's expected free cashflows with debt will be only $15 million per year. SupposeMarpor's tax rate is 35%, and the beta of Marpor's freecash flows is 1.10 (with or without leverage).

a.) Estimate Marpor's value without leverage.
b.) Estimate Marpor's value with new leverage.

 

Reference no: EM13305953

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