Marpor Industries has no debt and expects to generate free cash flows of $15 million each year. Marpor believes that if it permanently increases its level of debt to$25.16 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 $14 million per year. Suppose Marpor's tax rate is

25%,

the risk-free rate is

6%,

the expected return of the market is

15%,

and the beta of Marpor's free cash flows is

1.1

(with or without leverage).

a. Estimate Marpor's value without leverage.

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