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Problem 16-16 Tax Shields (LO2) River Cruises is all-equity-financed with 53,000 shares. It now proposes to issue $280,000 of debt at an interest rate of
Problem 16-16 Tax Shields (LO2)
River Cruises is all-equity-financed with 53,000 shares. It now proposes to issue $280,000 of debt at an interest rate of 12% and to use the proceeds to repurchase 28,000 shares. Suppose that the corporate tax rate is 21%. Calculate the dollar increase in the combined after-tax income of its debt-holders and equity-holders if profits before interest are:
Note: Do not round intermediate calculations.
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