value with and without leverage
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Marpor Industries has no debt and expects to generate free cash flows of $16 million each year. Marpor believes that if it permanently increases its level of debt to $40 million, the risk of finical distress may cause it to loose some customers and receive less favorable terms from its suppliers. As a result, Marpor's expected free cash flows with debt will be only $15 million per year. Suppose Marpor's tax rate is 35, the risk- free rate is 5%, the return of the market is 15%, and the beta of Marpor's free cash flows is 1.10 (with or without leverage).
a. Estimate Marpor's value without leverage?
b. Estimate Marpor's value with leverage?
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Solution Summary
This solution estimates Marpor's value with and without leverage.
Education
- BA, Ain Shams University, Cairo Egypt
- MBA, California State University, Sacramento
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