b) How can the use of debt financing better align the incentives of managers with the interests of shareholders? (2 marks)

c) Milton Industries has no debt and expects to generate free cash flows of 20 million each year. Milton believes that if it permanently increases its level of debt to 45 million, the risk of financial distress may cause it to lose some customers and receive less favourable terms from its suppliers. As a result, Miltons expected free cash flows with debt will decrease to 18 million per year. Suppose Miltons tax rate is 30%, the risk free rate is 1%, the expected return of the market is 7%, and the beta of Miltons free cash flow is 1.2 with or without leverage.

i) Estimate Miltons value without leverage. (2 marks)

ii) Estimate Miltons value with the new leverage. (2 marks)

SHOW ALL CALCULATION AND EXPLAIN IN DETAIL THANK YOU