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