Estimate marpors value with the new leverage

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Marpor Industries has no debt and expects to generate free cash flows of $14 million each year. Marpor believes that if it permanently increases its level of debt to $35 million, the risk of financial distress may cause it to lose some customers and receive less favourable terms from its suppliers. As a result, Marpor's expected free cash flows with debt will be only $13 million per year. Suppose Marpor's tax rate is 30%, the risk-free rate is 4%, the expected return of the market is 16%, and the beta of Marpor's free cash flows is 1.3 (with or without leverage).

a. Estimate Marpor's value without leverage.

b. Estimate Marpor's value with the new leverage.

Reference no: EM131560635

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