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What is the value of the interest tax shield-mountain

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Donald Dumb is a financial analyst, and his job is to make decisions on capital structure for Mountain Corporation. He forecasts the free cash flow of Mountain Corporation for next year. It is $4.25 million and is expected to grow at a rate of 4% per year thereafter. Mr. Dumb has estimated the equity cost of capital of the Mountain Corporation, which is 10%. This is a BBB rated Corporation and the YTM of the bond is 6%, which is equal to the cost of debt. The corporate tax rate Tc is equal to 35%. The debt equity ratio of Mountain Corporation is equal to 0.5. What is the value of the interest tax shield of Mountain Corporation?

Reference no: EM132679307

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