Problem 16-17 Tax Shields (LO2)

Establishment Industries borrows $740 million at an interest rate of 7.0%. Establishment will pay tax at an effective rate of 21%. What is the present value of interest tax shields if:

a. It expects to maintain this debt level into the far future? (Enter your answer in millions of dollars rounded to 1 decimal place.)

b. It expects to repay the debt at the end of 6 years? (Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 2 decimal places.)

c. It expects to maintain a constant debt ratio once it borrows the $740 million and r_Assets = 10%? (Do not round intermediate calculations. Enter your answer in millions of dollars rounded to 1 decimal place.)