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1. Toyota has no debt and has projected cash flows of $20 million each year. Toyota believes that by permanently increasing their debt levels to $40 million the risk of financial distress cost may cause it to lose some customers and receive less favourable terms from its suppliers. As a result, Toyota's expected free cash flows with debt will only be $19 million per year. Toyota has a 40% tax rate, 4% risk-free rate, the expected market return is 13% and Toyota's beta of free cash flows is 1.4 (with or without leverage) a. What is Toyota's value without leverage? FNCE-317 PASS Session Final Review Questions Rounak Uppal b. What is Toyota's value with $40 million of outstanding debt