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Now assume that as debt is substituted for stock the likelihood of using the tax deductions during the period of interest expense is decreased so that the expected value ofthe tax savings are now:

How much debt should ABC issue?

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Amount of .10 Debt 20,000,000 30,000,000 40,000,000 50,000,000 Expected Present Value of Tax Savings 600,000 900,000 1,200,000 1,400,000.