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Find the present value of the interest tax shield

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Reference no: EM132707303

You are an analyst valuing Palm and Sun Industries for a possible acquisition. Below are pro forma estimates of unlevered free cash flow and interest tax savings for the 3-year planning period. Starting in year 4, you expect a constant growth rate of 3%, which is applicable to both equity- and debt-related cash flows. The unlevered cost of equity is 15% and the cost of debt is 8%. The tax rate is 35%. Cash flows are given in millions. Find the present value of the interest tax shield.

Year 1 Year 2 Year 3
Free Cash Flow 8 12 13
Tax Savings 2 1 1

Reference no: EM132707303

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