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Question
A local firm has debt worth $200,000, with a yield of 9%, and equity worth $300,000. It is growing at a 5% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 12%. Using the compressed adjusted present value model, what is the value of your firm's tax shield, i.e., how much value does the use of debt add?a. $92,571
b. $102,857
c. $113,143
d. $124,457
e. $136,903
Answer
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