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AFMADJUSTED PV

AAabbas ali14y ago
IN CALCULATING TAX SHIELD ON DEBT.

WE ADD ISSUE COST ON DEBT OR NOT.

FOR EX 250,000 FOR DEBT AND ISSUE COST IS 2%

SO HOW WE CALCULATE THE TAX SHIELD?

TAX RATE 25%
111ish14y ago#1
There is a detailed example in kaplan on this. Nevertheless, you have to add issue costs. If you are assuming that 250k is NET of issue costs, it is 98% of the total debt you raise. What you actually raise is 250k * 100/98. Tax shield is then calculated on this amount.
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