What is the value of the company tax shield

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Reference no: EM132044361

A company has EBIT of $500,000, a growth rate of 5%, and faces a tax rate of 40%. To grow, the company must reinvest 50% of its EBIT in net operating assets. The company has $400,000 in 10% debt outstanding. A similar company with no debt has a cost of equity of 12%.(this problem assumes growth in earings, otherwise referred to as MM extension with growth) WHAT IS THE VALUE OF THE COMPANY'S TAX SHIELD?

Reference no: EM132044361

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