Monaca Ltd has no debt and is currently valued at $800 million.

The Company is considering a permanent increase in debt of $90 million.

Suppose the tax rate is 30%, the weighted average cost of capital is 15% and the cost of debt is 6%.

Required:

1. Estimate the companys value with the new leverage. Express your answer to the nearest million.
2. Monaca Ltd believes that if it permanently increases its level of debt, the risk of financial distress may cause it to lose some customers and receive less favourable terms from its supplier. As a result, the companys expected free cash flows with debt will be decreased by $6 million each year forever. Estimate the companys value with the new leverage, incorporating the effects of financial distress. Express your answer to the nearest million.