SETAL has an unlevered cost of equity equal to 11.5% and a tax rate of 16%. In years one, two, and three, the expected interest expenses are $142, $255, and $312, respectively. After Year 3, the interest expenses are forecasted to increase at a constant 4.5% each year. What is the horizon value of the interest tax shield?

Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter21: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
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SETAL has an unlevered cost of equity equal to 11.5% and a tax rate of
16%. In years one, two, and three, the expected interest expenses are
$142, $255, and $312, respectively. After Year 3, the interest expenses
are forecasted to increase at a constant 4.5% each year. What is the
horizon value of the interest tax shield?
Transcribed Image Text:SETAL has an unlevered cost of equity equal to 11.5% and a tax rate of 16%. In years one, two, and three, the expected interest expenses are $142, $255, and $312, respectively. After Year 3, the interest expenses are forecasted to increase at a constant 4.5% each year. What is the horizon value of the interest tax shield?
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