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, Marpors expected free cash flows with debt will be only $15 million per year. Suppose Marpors tax rate is 35%, the risk-free rate is 5%, the expected return of the market is 15%, and the beta of Marpors free cash flows is 1.10 (with or without leverage).

a. Estimate Marpors value without leverage.

b. Estimate Marpors value with the new leverage.