1)

Suppose the corporate tax rate for Company A is 45%. Consider a firm that earns $876 before interest and taxes each year with no risk. The firms capital expenditures equal its depreciation expenses each year, and it will have no changes to its net working capital. The risk-free interest rate is 4.43%.

Suppose the firm makes interest payments of $450 per year. What is the difference between the total value of the firm with leverage and without leverage?

2

Company A has $13569124 in permanent debt outstanding. The firm will pay interest only on this debt. The firm's marginal tax rate is expected to be 42% for the foreseeable future. Suppose that the firm pays interest of 4.71% per year on its debt.

What is the annual interest tax shield?

3

Company A has $9893863 in permanent debt outstanding. The firm will pay interest only on this debt. The firm's marginal tax rate is expected to be 42% for the foreseeable future. Suppose that the firm pays interest of 6.21% per year on its debt.

What is the present value of the interest tax shield, assuming its risk is the same as the loan?