ADJUSTED PV

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October 24, 2011 at 6:59 am #50207
abbas ali
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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%
October 27, 2011 at 5:12 am #89051
11ish
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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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