Question: In an M&A evaluation using APV method, the target company currently (year 0) has $5 million of debt outstanding. The debt balance then is expected

In an M&A evaluation using APV method, the target company currently (year 0) has $5 million of debt outstanding. The debt balance then is expected to increase by 5% at the end of each year for the foreseeable future. The cost of debt as well as coupon rate is expected to remain constant at 12%. Assume the company is in the 34% tax bracket.

Calculate the present value of the overall tax shield benefit of debt (i.e., PV(TS))

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