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What is the horizon value of the tax shield at year two

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Reference no: EM132902068

Problem - A company forecasts free cash flow of $400 at Year 1 and $600 at Year 2; after Year 2, the FCF grow at a constant rate of 5%. The company forecasts the tax savings from interest deductions as $200 in Year 1, $100 in Year 2; after Year 2, the tax savings grow at a constant rate of 5%. The unlevered cost of equity is 9%. What is the horizon value of operations at Year 2? What is the current unlevered value of operations? What is the horizon value of the tax shield at Year 2? What is the current value of the tax shield? What is the levered value of operations at Year 0?

Reference no: EM132902068

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