Explore BrainMass

Explore BrainMass

    PV of firm's tax shield and MM hypothesis

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Your firm has debt worth $200,000, with a yield of 9 percent, and equity worth $300,000. It is growing at a 4 percent rate, and faces a 40 percent tax rate. A similar firm with no debt has a cost of equity of 12 percent. Under the MM extension with growth, what is the value of your firm's tax shield?

    © BrainMass Inc. brainmass.com June 3, 2020, 7:01 pm ad1c9bdddf

    Solution Preview

    Debt amount = $200000
    Yield = 9%
    Interest Payment = 9%*200000=18000
    Tax rebate on interest ...