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What is the value of the tax shield if the value of the firm is Rs.5 million, its value if unlevered would be Rs.4.78 million, and the present value of bankruptcy and agency costs is Rs.360,000? |
Answer» The value of the tax shield is $580,000Explanation: The formula and the computation of the value of the tax shield is shown below: Value of the FIRM= Value of unlevered + value of the tax shield - (Present value of Bankruptcy + Agency costs) $5,000,000 = $4,780,000 + value of the tax shield - $360,000 $5,000,000 = $4,420,000 + value of the tax shield So, the value of the tax shield is = $5,000,000 - $4,420,000 = $580,000 Learn more What is levered and unlevered beta and which ONE is USED in the CAPM model |
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