Chouteau Coffee (CC) is currently all-equity financed, with re = 9%. They are considering adding $25 million in debt. They anticipate a cost of debt of 5% tax rate of 35% CC expects to grow at a rate of 2% annually after next year. Calculate the present value of the tax shield associated with this debt financing under the following scenarios. 3. Scenario 1: Assume the debt is permanent set to $25 million. 4. Scenario 2: Assume the debt is set to $25 million for the next 10 years, and then will be reduced to a permanent level of $15 million thereafter. 5. Scenario 3: Assume CC issues the $25 million in debt, and will target a fixed D/V ratio permanently (the D/V that obtains after the new issuance). Assume the riskiness of the tax shield is the same as the riskiness of the assets. 6. Assume now that the expected tax rate is 40% for the three scenarios. Re-compute the value of the tax shields, and discuss this higher tax rate on the firm value of CC. Chouteau Coffee (CC) is currently all-equity financed, with re = 9%. They are considering adding $25 million in debt. They anticipate a cost of debt of 5% tax rate of 35% CC expects to grow at a rate of 2% annually after next year. Calculate the present value of the tax shield associated with this debt financing under the following scenarios. 3. Scenario 1: Assume the debt is permanent set to $25 million. 4. Scenario 2: Assume the debt is set to $25 million for the next 10 years, and then will be reduced to a permanent level of $15 million thereafter. 5. Scenario 3: Assume CC issues the $25 million in debt, and will target a fixed D/V ratio permanently (the D/V that obtains after the new issuance). Assume the riskiness of the tax shield is the same as the riskiness of the assets. 6. Assume now that the expected tax rate is 40% for the three scenarios. Re-compute the value of the tax shields, and discuss this higher tax rate on the firm value of CC