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Calculate the present value of the tax shield

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Reference no: EM132491803

Tom's Trucking, Inc. (TTI) is currently all-equity financed, with rE = 10%. They are considering adding $25 million in debt. They anticipate a cost of debt of 5%.

Calculate the present value of the tax shield associated with this debt financing under the following assumptions:

1) Debt will be kept outstanding at a fixed level for only 10 years, tc = 35%, ignore personal taxes.

Reference no: EM132491803

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