Computation of present value of tax shields of the bond

Reference no: EM1315567

Doubles Company is issuing $10 million debt ($1,000 par per bond) with 10-year bonds with 16% annual coupon rate, even though its (pre-tax) cost of debt is only 8%. The firm\'s tax rate is 40%. Compute the present value of tax shields.

Also compute the PVTS for $10 million debt if Doubles Co. issues i) 8% coupon bonds and ii) zero coupon bonds.

Reference no: EM1315567

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