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Flying Tiger Corp. is currently unlevered, has equity valued at $ 8 3 6 0 0 0 , and has earnings before interest and tax
Flying Tiger Corp. is currently unlevered, has equity valued at $ and has earnings before interest and tax EBIT of $ In order to save on taxes, FTs CEO suggests that the firm should issue new debt to the market and use the proceeds of the debt issue to retire a portion of its equity. The capital structure change results in $ of new debt with an annual interest expense of percent. Assume no other changes to Flying Tiger.
a How much in taxes will Flying Tiger save, per year, as a result of the decision to issue debt and retire equity? Use a corporate tax rate of percent.
Answer:$
Place your answer in dollars with no comma.
bSuppose that the debt is permanent, meaning that this new level of debt will stay on the books year after year forever. Under this scenario determine the how much in value the permanent debt tax shields provide?
Answer:$
Place your answer in dollars with no comma.
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