You are the Chief Financial Officer of LVMH, and you are analyzing the impact of a new loan on the firms value. Assume that the company has just borrowed $10 billion in debt by issuing a perpetual bond (assumption made for simplicity). The firm will pay interest only on this debt. The marginal corporate tax rate is expected to be 20% for the foreseeable future.

Suppose LVMH pays interest of 2% per year on its debt. What is its annual interest tax shield?

The annual interest tax shield is $[a] billion. (Round to two decimal places.)

Everything else being equal, what is the impact of the new loan on the firms value? (Assume the risk associated to the tax shield is the same as the loan)

The new loan (increases/decreases?) [b] the theoretical value of the firm by $[c] billion.