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Home Q & A Board Other Fields Homework Help Business Finance
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johnpaech johnpaech
wrote...
Posts: 1098
Rep: 7 0
6 years ago
If Flagstaff currently maintains a .5 debt to equity ratio, then the value of Flagstaff's interest tax shield is closest to:
A) $11 million
B) $18 million
C) $10 million
D) $24 million
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
Read 86 times
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wrote...
#1
6 years ago
A
Explanation:  A) rwacc =   rE +   rD (Pre tax)
rwacc =   .13 +   .07 = .11
VU =   =   = $100 million
rwacc =   rE +   rD (1 - τc) (after tax)
rwacc =   .13 +   .07 (1 - .35) = .101833
VL =   =   = $111.37 million
PV of tax shield = VL - VU = $111.37 - $100 = $11.37
johnpaech Author
wrote...
#2
5 years ago
This course drove me insane!
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