Question: Doubles Company is issuing 10 million dollar debt [$1,000 par per bond] with ten year bonds with 16% yearly coupon rate, even though its [pretax] cost of debt is only 8 percent. The firm’s tax rate is 40%. Calculate the present value of tax shields.
Also calculate the PVTS for $10 million debt if Doubles Co. issues [A] 8% coupon bonds & [B] zero coupon bonds.