Question
This company expects an EBIT of $200,000 for Year-1. EBIT is expected to grow at 6% thereafter. The tax rate is 25%. In order to
This company expects an EBIT of $200,000 for Year-1. EBIT is expected to grow at 6% thereafter. The tax rate is 25%. In order to support growth, the firm must reinvest 20% of its EBIT in net operating assets. The firm has $300,000 in 8% debt outstanding, and a similar company with no debt has a cost of equity of 11%.
Using the compressed adjusted present value model, what is the value of the firm's tax shield?
| a. | $97,741 | |
| b. | $120,000 | |
| c. | $114,000 | |
| d. | $102,885 | |
| e. | $108,300 |
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Modern Advanced Accounting In Canada
Authors: Hilton Murray, Herauf Darrell
7th Edition
1259066487, 978-1259066481
