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Assume the corporate tax rate is 20%. The firm has no debt in its capital...

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Finance

Assume the corporate tax rate is 20%. The firm has no debt in its capital structure. It is valued at $300 million. If this firm permanently borrows $70 million at an interest rate of 10%;

a) (10 points)What is the present value of the interest tax shield? What would be the value of this firm with this $70 perpetual debt?

b) (10 points)What would be the present value of the interest tax shield if the debt is taken only for three (3) years? And the value of the firm? Compare the two cases.

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