Problem
Tax Shield Value
Wilde Software Development has an 11% unleveraged 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%.
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Year 1
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Year 2
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Year 3
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Interest expenses
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$80
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$115
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$135
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a) What is the horizon value of the interest tax shield? Do not round intermediate calculations.
b) What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations.