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?

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Part 1

The present value of the tax shield is 

​$enter your response here 

billion. ​ (Round to two decimal​ places.)

The present value (PV) of the tax shield can be calculated using the formula:

\[
\text{PV of Tax Shield} = \text{Debt Amount} \times \text{Tax Rate}
\]

### Step-by-step calculation:

1. **Determine the total market value (MV) of Microsoft:**
   \[
   MV = 2300 \, \text{billion}
   \]

2. **Calculate the amount of new debt Microsoft will take on:**
   Microsoft is taking on **12.7%** of its market value as new debt. So, the debt amount is:
   \[
   \text{Debt Amount} = 12.7\% \times 2300 \, \text{billion}
   \]
   \[
   \text{Debt Amount} = 0.127 \times 2300 = 292.1 \, \text{billion}
   \]

3. **Apply the marginal tax rate to calculate the present value of the tax shield:**
   The tax rate is **21%**:
   \[
   \text{PV of Tax Shield} = 292.1 \, \text{billion} \times 21\%
   \]
   \[
   \text{PV of Tax Shield} = 292.1 \times 0.21 = 61.34 \, \text{billion}
   \]

### Final Answer:
The present value of the tax shield is **\$61.34 billion**.

Would you like more details or have any questions?

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Here are 5 related questions to expand on this concept:

1. How does a company's debt structure impact its overall valuation?
2. What is the relationship between leverage and a company’s risk profile?
3. How does the tax shield affect the weighted average cost of capital (WACC)?
4. Can changes in tax rates significantly alter the value of a company’s tax shield?
5. What other factors should a company consider when deciding to take on more debt?

**Tip:** Companies often balance between tax shields and the risk of financial distress when optimizing their capital structure.

Assume that Microsoft has a total market value of $2,300 billion and a marginal tax rate of 21%. If it permanently changes its leverage from no debt by taking on new debt in the amount of 12.7% of its current market value, what is the present value of the tax shield it will create? (Round to two decimal places.)

Discover how to calculate the present value of Microsoft's tax shield when the company takes on 12.7% of its market value in new debt with a 21% marginal tax rate. Follow a step-by-step guide to leverage, debt, and tax shield calculations. Suitable for undergraduate finance students.

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