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Value of flagstaff interest tax shield

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Reference no: EM131964043

Flagstaff Enterprises expected to have free cash flow in the coming year of $8 million, and this free cash flow is expected to grow at a rate of 3% per year thereafter. Flagstaff has an equity cost of capital of 13%, a debt cost of capital of 7%, and it is in the 35% corporate tax bracket.

If Flagstaff currently maintains a .5 debt to equity ratio, then the value of Flagstaff's interest tax shield is closest to:

  • $11 million
  • $18 million
  • $10 million
  • $24 million

Reference no: EM131964043

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