Managerial Finance 650

Problem 22-03 (Tax Shield Value)

Wilde Software Development has a 9% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 5% rate after Year 3. Wilde's tax rate is 25%.

	YEAR 1	YEAR 2	YEAR 3
INTEREST EXPENSES	$75	$105	$150

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

$__________

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.

$__________