Deja vu Corp (DVC) has no debt and it expects to generate free cash flows of $16 million in perpetuity. The unlevered cost of equity is 16%. If DVC changes for a levered capital structure with $40 million in permanent debt, its free cash flows will fall because of distress risk. If the company has a tax rate of 35%, what is the minimum level of free cash flows that will still make the change in capital structure worthwhile?

Question options:

	21.50
	14.00
	8.00
	6.40
	13.76

Hide hint for Question 22
Find the value of the unlevered firm and then find the level of free cash flows that exactly offsets the tax benefits of using debt. Use Solver!