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 financial distress may cause it to lose 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

expected return of the market is 15%, and the beta of Marpor's free cash ows is 1.10

(with or without leverage).

a. Estimate Marpor's value without leverage.

b. Estimate Marpor's value with the new leverage