eBook Problem Walk$-$Through

Tax Shield Value

Wilde Software Development has a $14\%$ 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 $$80$ $$100$ $$115$

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

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b$.$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.