Question
Your firm will have debt next year of $1,500,000. Each year of your five-year forecast horizon, that number goes down by ten percent (year
Your firm will have debt next year of $1,500,000. Each year of your five-year forecast horizon, that number goes down by ten percent (year 2 debt = 90% of year 1 debt; year 3 debt = 90% of year 2 debt, etc.). You firm has a cost of debt of 5%, a cost of equity of 14%, and a tax rate of 35%. It is currently financed with a mix of 40% debt and 60% equity. Using the APV approach to value the firm, what would be the value of the tax shield provided by the debt load above over the five-year forecast horizon? Answer in dollars, rounded to the nearest dollar.
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Linear Algebra A Modern Introduction
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