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What is the present value of the tax shields

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Question: Avco is investing $200 million in a new project. To finance this investment the company will issue $200 million of new debt in the form of a 7-year bond. The bond will be repaid in one bullet payment after 7 years. The cost of debt associated with this bond is 3% and the marginal corporate tax rate of Avco is 25%. Using the APV method, what is the present value of the tax shields associated with this project?

Reference no: EM132753559

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