Question
Firm B had earnings before interest and taxes of 1million in 2020. Net earnings are taxed at the corporate tax rate Tc=30%.B is all equity.
Firm B had earnings before interest and taxes of 1million in 2020. Net earnings are taxed at the corporate tax rate Tc=30%.B is all equity. a. Compute the cash-flow available to shareholders b. B has debt with face value 20million and interest rate 3%. Compute the cash-flow available to shareholders. And the cash-flow available to debtholders. Assume now that Fs EBIT is risk-free at 1million and going to infinity. B is levered and debt is constant at face value 20million, interest rate is 3% going forever. Risk-free rate is 2%. c. Compute the Tax Shield.
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