[Solved] Use the Information for the Question(s)below

Question 34
Multiple Choice

Use the information for the question(s)below. Suppose Luther Industries is considering divesting one of its product lines.The product line is expected to generate free cash flows of $2 million per year,growing at a rate of 3% per year.Luther has an equity cost of capital of 10%,a debt cost of capital of 7%,a corporate tax rate of 21%,and a debt-equity ratio of 2.This product line is of average risk and Luther plans to maintain a constant debt-equity ratio. -Luther's unlevered cost of capital is closest to:

A)8.0%.
B)8.5%.
C)9.0%.
D)6.4%.

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