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Please show calculations. Wilde Software Development has a 12% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at
Please show calculations.
Wilde Software Development has a 12% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 4% rate after Year 3. Wilde's tax rate is 25%.
Interest expenses:
Year 1: $80
Year 2: $100
Year 3: $120
(a) What is the horizon value of the interest tax shield? (Note: according to the book's appendix, the answer is $390)
(b) What is the total value of the interest tax shield at Year 0? (Note: according to the book's appendix, the answer is $336.7347)
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