HERE IS A SAMPLE SOLUTION WITH DIFFERENT VALUES, BE VERY CAREFUL MAKE SURE YOU USE THE VALUES FOR THIS QUESTION IN THE ABOVE WORKING, WILL UPVOTE FOR CORRECT ANSWERS.

Solution: There are three possible \"worlds\" we could be in (1) Perfect capital market world (2) One imperfection - corporate taxes, or (3) Two imperfections - corporate taxes and financial distress costs. In this problem, we are in a world with only one imperfection: corporate taxes. In this world of corporate tax imperfection only, everyone can borrow at the same market interest rate, i.e. at the risk-free rate \=6.05 and the corporate tax rate is \42.5. Part A \\[ \\begin{aligned} \\text { PV }(\\text { Interest Tax Shields }) & =\\text { Market value of Debt * Tax rate } \\\\ & =D * T \\end{aligned} \\] The firm is paying coupons in perpetuity, so we can use the perpetuity formula to value the debt: \\[ \\begin{aligned} \\text { MV of Debt } & =\\text { Coupon amount } / \\text { Market interest rate } \\\\ & =\\text { Coupon rate * Face Value of bond } / \\text { risk-free rate } \\\\ & =0.0677 * 5.497 / 0.0605 \\\\ & =6.15118842975 \\text { billions } \\\\ & =6151.18842975 \\text { millions } \\end{aligned} \\] Hence, \\( \\mathrm{PV}(\\mathrm{ITS})=6151.18842975 * 0.425 \\) \\[ \\begin{array}{l} =2614.25508264 \\\\ =2614.26 \\end{array} \\] Part B \\[ \\begin{array}{l} \\begin{aligned} \\text { MV of Equity } & =\\text { Current share price * Number of shares outstanding } \\\\ & =4.89 * 460.0 \\\\ & =2249.4 \\text { millions } \\\\ \\text { Value of Levered firm } & =\\text { MV of equity }+ \\text { MV of Debt } \\\\ & =2249.4+6151.18842975 \\\\ & =8400.58842975 \\\\ \\text { Weight of debt } & =6151.18842975 / 8400.58842975 \\\\ & =0.7322330431 \\\\ & =73.22 \\% \\end{aligned} \\end{array} \\] Value of Levered firm \\( =M V \\) of equity \\( +M V \\) of Debt \\[ \\begin{array}{l} =2249.4+6151.18842975 \\\\ =8400.58842975 \\end{array} \\] Weight of debt \\( =6151.18842975 / 8400.58842975 \\) \beginarrayl=0.7322330431=73.22 Other values: \\[ \\begin{array}{l} M_{E}=\\$ 2.249400 \\text { billion } \\\\ M_{D}=\\$ 6.151188 \\text { billion } \\\\ V_{L}=\\$ 8.400588 \\text { billion } \\\\ R_{W A C C}=100 \\cdot \\text { WACC\\% } \\\\ W_{D}=73.223304 \\% \\\\ W_{E}=26.776696 \\% \\\\ V_{U}=\\$ 5.785000 \\text { billion } \\\\ V_{L}=\\$ 8.400588 \\text { billion } \\end{array} \\] A correct answer is 2614.26, which can be typed in as follows: 2614.26 A correct answer is 73.22 , which can be typed in as follows: 73.22 Yellow Elm Education Technology currently has bonds outstanding with a total face value of \\( \\$ 4.604 \\) billion on which the firm pays coupons in perpetuity at a rate of \6.95 per annum. The firm also pays corporate tax at a marginal rate of \42.5 and the risk-free rate is currently \6.12 per annum. Aside from the presence of corporate taxes, assume that Yellow Elm Educational Technologies exists in a world where there are no other capital market imperfections (such as agency costs, the costs of financial distress, etc.) and everyone can borrow at the risk-free rate. A) Assume that the risk of the interest tax shields is the same as the risk of the debt itself. Calculate the present value of the interest tax shields resulting from YEET's current level of debt financing. The Present Value of the Interest Tax Shields is \\( \\$ \\) million (Round your answer to 2 decimal places) Assume that YEET also has 440.0 million shares of ordinary equity outstanding that currently trade at a price of \\( \\$ 4.44 \\) each B) Given the above information, what would be the percentage weight of debt (i.e. \\( \\mathrm{w}_{\\mathrm{D}} \\) ) in their capital structure that YEET would use in the calculation of their weighted average cost of capital (i.e. \\( \\mathrm{R}_{\\text {WACC }} \\) )?? The firm is financed by \ debt. (Round your answer to 2 decimal places)