3. Problem 22-03 (Tax Shield Value)

Tax Shield Value

Wilde Software Development has a 12% unlevered 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%.

Year 1 Year 2 Year 3

Interest expenses $75 $105 $125

1. What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent.

   $

2. What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round your answer to the nearest cent.

   $