Find the value of tax shield

Reference no: EM1353184

3. Which of the following does NOT always increase a company's market value?
a. Increasing the expected growth rate of sales.

b. Increasing the expected operating profitability (NOPAT/Sales).

c. Decreasing the capital requirements (Capital/Sales).

d. Decreasing the weighted average cost of capital.

e. Increasing the expected rate of return on invested capital.

Discuss fully the reasons for your choice.

4. Your firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. Under the MM extension with growth, what is the value of your firm's tax shield, i.e., how much value does the use of debt add?
a. $92,571

b. $102,857

c. $113,143

d. $124,457

e. $136,903

Reference no: EM1353184

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