Software Development

3.  Problem 22-03 (Tax Shield Value)

Wilde Software Development has a 14% unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant 4% rate after Year 3. Wilde’s tax rate is 25%. 

Year 1 Year 2 Year 3 Interest expenses

$70        $95          $140 

What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

What is the total value of the interest tax shield at Year 0? Do not round intermediate calculations. Round your answer to the nearest cent.

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