Math Problem Statement
Assume that Microsoft has a total market value of
$2 comma 3002,300
billion and a marginal tax rate of
21 %21%.
If it permanently changes its leverage from no debt by taking on new debt in the amount of
12.7 %12.7%
of its current market value, what is the present value of the tax shield it will create?
Question content area bottom
Part 1
The present value of the tax shield is
$enter your response here
billion. (Round to two decimal places.)
Solution
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Math Problem Analysis
Mathematical Concepts
Corporate Finance
Tax Shield Calculation
Leverage
Debt Valuation
Formulas
PV of Tax Shield = Debt Amount × Tax Rate
Debt Amount = Percentage of Market Value × Total Market Value
Theorems
Tax Shield Theorem
Corporate Leverage Theory
Suitable Grade Level
Undergraduate Finance or Business School Level
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