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Pack-and-Send, Inc. expects to have free cash flow of $6.5 million next year and this cash flow will grow at a rate of 6% per year thereafter. The firm's equity cost of capital is 9% and its debt cost of capital is 5%. Assume that Pack-and-Send has a corporate tax rate of 30%. If the firm maintains a debt-to-equity ratio of 0.60, the value of the firm's tax shield is closest to: options: $18.47 million $27.95 million $54.28 million $260.00 million None of the above

Pack-and-Send, Inc. expects to have free cash flow of $6.5 million next year and this cash flow will grow at a rate of 6% per year thereafter. The firm's equity cost of capital is 9% and its debt cost of capital is 5%. Assume that Pack-and-Send has a corporate tax rate of 30%. If the firm maintains a debt-to-equity ratio of 0.60, the value of the firm's tax shield is closest to: options: $18.47 million $27.95 million $54.28 million $260.00 million None of the above

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter17: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
Problem 8P
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Pack-and-Send, Inc. expects to have free cash flow of $6.5 million next year and this cash flow will grow at a rate of 6% per year thereafter. The firm's equity cost of capital is 9% and its debt cost of capital is 5%. Assume that Pack-and-Send has a corporate tax rate of 30%. If the firm maintains a debt-to-equity ratio of 0.60, the value of the firm's tax shield is closest to: options:

$18.47 million

$27.95 million

$54.28 million

$260.00 million

None of the above

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