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What are the present values of the tax shields

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Question - What are the present values of the tax shields in the following circumstances (in millions)?

a. $10 million face amount of 2-year, annual coupon, risk free debt, making interest payments at the risk-free rate of 4%, with the face amount repaid at maturity. Assume a corporate tax rate of 20%.

b. The same debt as in part a, but at a corporate tax rate of 30%.

c. $10 million of perpetual (i.e., principal is never repaid), annual coupon, risk-free debt, making interest payments at the risk-free rate of 4%. Assume a corporate tax rate of 20%.

Reference no: EM133031503

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