you have been asked to compute the monetary value of the tax benefits from existing debt for XYZ,a Japanese firm.The firm has 1.2billion Yen in debt outstanding with an interest rate of 7%.The corporate tax rate for the firm is currently 42%.

(a)Assuming perpetual debt,estimate the present value of tax benefits from debt.

(b)Now assume that personal taxes are also a relevant consideration and you find that the personal tax on equity income is 15% for XYZ shareholders and the personal tax rate on debt interest is 35% for XYZ bondholders.Using this additional information,estimate the present value of tax benefits from debt(again assuming an infinite life for the debt)

(c)What model is appropriate for answering part(b)