Calculate the value of its received by highroller

Assignment Help Financial Management

Reference no: EM131992338

ITS stands for Interest Tax Shield

Given solutions by professor (answers expressed in terms of thousands I believe)

a) Face value = 1240.3463

b) Value of ITS = 60.5738

c) Value of ITS = 158.7176

Step by step thorough solution is appreciated. Thanks

Problem 4.3. Highroller Investment Co. wishes to borrow $500 million at 2% yearly interest. Interest payments are made annually.

The principal will be repaid at the end of 10 years. Investors demand an annual return of 13% on this debt. Highroller's tax rate is 45%

a. Calculate the face value needed to induce investors to lend $500 million.

b. Calculate the value of ITS received by Highroller.

c. Suppose instead that the debt has a face value of $500 million and a yearly coupon rate of 13% Principal will be repaid at the end of 10 years.Calculate the value of ITS received by Highroller in this case.

Reference no: EM131992338

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