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Suppose company X decides to increase its leverage position, which increases the size of its interest expense by $500 in one accounting period. The tax
Suppose company X decides to increase its leverage position, which increases the size of its interest expense by $500 in one accounting period. The tax rate on corporate profits is 20%. If the additional tax shield generated by this increased leverage yields a cash flow stream over the next three periods equal to (21, 12, 13).what is the net present value of the additional tax shield from only these three periods at a discount rate of 10%? (assume you need to discount the first payment in the tax shield so that there is no payment in period zero-round your answer to two decimal places if necessary)
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