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?

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.