Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Question

3) Wilde Software Development has a 9% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 3% rate after Year 3. Wilde's tax rate is 25%.

  Year 1  Year 2  Year 3 
Interest expenses $90  $120  $160 

 

  1. What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent.

    $ _________ 

  2. What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round your answer to the nearest cent.

    $ ________ 

 

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Step 1: Given:
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Step 2: Calculate Horizon Value of Interest Tax Shield:
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Step 3: Clculate Total Value of Interest Tax Shield in Year 0:
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