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What is the present value of the debt tax shield

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Problem 1: A company plan to borrow 100M for the next 5 years, during which time they will only pay interest. They plan to repay all of the remaining debt at the start of the 6th year. The company has a cost of debt of rD = 3% and a corporate tax rate of ????=35%. The company will be successful and project EBIT will be 20M per year forever. What is the present value of their debt tax shield?

Reference no: EM132933559

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