What is the present value of the tax shield

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Reference no: EM13943221

Assume a world with corporate tax rate of 50% and no personal taxes. Company U has no debt, an operating income of $48m, a return on equity %20, and 3m shares outstanding. Company U decides to borrow $60m at and interest rate of 10% and use the proceeds to repurchase shares.

A) What is the market value of Company U before the debt issue?

B) What is the present value of the tax shield?

C) What are the stock price and the market value balance sheet after the share repurchase?

Reference no: EM13943221

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