To calculate the present value of the tax shield created by Microsoft taking on new debt, we use the formula for the present value of a tax shield:

$PV_{\text{tax shield}} = \text{Debt} \times \text{Tax Rate}$

Where:

• Debt = $13.2\%$ of Microsoft's market value.
• Tax Rate = 21%.

Step 1: Calculate the total debt

Given that Microsoft's total market value is $1,900$ billion dollars, the amount of debt is:

$\text{Debt} = 13.2\% \times 1,900 \text{ billion} = \frac{13.2}{100} \times 1,900 = 250.8 \text{ billion}$

Step 2: Calculate the present value of the tax shield

Now that we know the amount of debt, we multiply it by the tax rate:

$PV_{\text{tax shield}} = 250.8 \times 21\% = 250.8 \times 0.21 = 52.67 \text{ billion}$

Thus, the present value of the tax shield is:

$\boxed{52.67 \text{ billion}}$

Let me know if you need further details or have any questions!

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Here are 5 related questions to consider:

1. How does increasing leverage impact a company’s cost of capital?
2. What other factors, besides taxes, influence a company’s decision to take on debt?
3. How does the present value of a tax shield change with varying tax rates?
4. What are the risks of increasing leverage in terms of financial stability?
5. How would the tax shield change if Microsoft’s market value fluctuated?

Tip: The tax shield benefit is one reason why firms use debt in their capital structure—it reduces their effective tax burden!