26 Jul WHAT IS THE PRESENT VALUE OF ALL OF YOUR EXPECTED TAX SHIELDS?
In this question we are going to value a tax shield when there is a probability that the firm will Show more In this question we are going to value a tax shield when there is a probability that the firm will default and will be unable to repay its debt payments. Assume that if the firm defaults the firm is liquidated that is if the firm defaults it does not issue any more debt and it does not obtain any more tax shields after default. Your firm just issued a one-year bond with a $1000 face value and a 4 percent promised interest payment. There is a 20 percent chance that the firm will default. In the event that the firm defaults it repays the face value but not the interest. In the event that the firm does not default it repays both the face value and the interest. If the firm does not default it re-issues a one-year bond with a $1000 face value and a 4 percent promised interest payment. The probability of default in every year is the same. Tax shields are only received on interest payments and not on the repayment of the face value of the bond. Assume a tax rate of 35 percent in all years and a discount rate of 4 percent on all cash flows. a) What is the expected tax shield next year? b) What is the expected tax shield in two years? Keep in mind that the only event in which you will receive this tax shield is when you do not default in the next two years. c) What is the present value of all of your expected tax shields? Show your work. Hint: for and ? ( ) ( ). d) What is the present value of all of your future tax shields if the firm has no probability of defaulting? How does this compare with your answer in part (c)? Show less
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.