Find the present value of the interest tax shield of firm

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Reference no: EM131263856

Assume we have two firms (L and U) that are identical expect for capital structure. Firm U is unlevered (holds no debt), and Firm L is levered (holds debt). Assume the EBIT of both firms is $20,000, and both firms are taxed at a 32% rate. Assume Firm L has $6,000 of perpetual bonds outstanding, on which it pays 9%. Find the present value of the interest tax shield for Firm L.

Reference no: EM131263856

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