Question: Suppose ECB from Example 16.3 borrows $2 billion by issuing 10-year bonds. ECBs cost of debt is 6%, so it will need to pay $120

Suppose ECB from Example 16.3 borrows $2 billion by issuing 10-year bonds. ECB’s cost of debt is 6%, so it will need to pay $120 million in interest each year for the next 10 years, and then repay the principal of $2 billion in year 10. ECB’s marginal tax rate will remain 35% throughout this period. By how much does the interest tax shield increase the value of ECB?

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