Value the tax shield
Your firm has a debt to equity ratio of 0.3 and next year’s cash flow should be 39 million which is growing at a 2% rate. The current debt cost of capital is 6%, the equity cost of capital is 20% and the appropriate tax rate is 35%.
A) What is the firm’s unlevered cost of capital?
B) What is the firm’s wacc given the current capital structure?
C) Solve for the firm’s present value of the tax shield.