14.) 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, Marpors expected free cashflows with debt will be only $15 million per year. SupposeMarpors tax rate is 35%, and the beta of Marpors freecash flows is 1.10 (with or without leverage).

a.) Estimate Marpors value withoutleverage.

b.) Estimate Marpors value with newleverage.