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Assume that Microsoft has a total market value of $304.1 billion and a marginal tax rate of 35%. If it permanently changes its leverage from no debt by taking on new debt in the amount of 13.3% of its current market value, what is the present value of the tax shield it will create? The present value of the tax shield is $ billion. (Round to two decimal places.) Assume that Microsoft has a total market value of $310 billion and a marginal tax rate of 35%. If it permanently changes its leverage from no debt by taking on new debt in the amount of 13.7% of its current market value, what is the present value of the tax shield it will create? Plan: To compute the present value of the tax shield we can use the following equation: PV(InterestTaxShield)=TcD where Tc is the marginal corporate tax rate and D is the amount of debt. Execute: Use the formula given above to compute the present value of the tax shield. Therefore, PV(InterestTaxShield)=35%($31013.7%)=$14.86billion The present value of the tax shield is $14.86 billion. Evaluate: We know that in perfect capital markets, financing transactions have an NPV of zero. However, the interest tax deductibility makes this a positive-NPV transaction for the firm. The total value of the levered firm exceeds the value of the firm without leverage due to the present value of the tax savings from debt. There is an important tax advantage to the use of debt financing. Assume that Microsoft has a total market value of $304.1 billion and a marginal tax rate of 35%. If it permanently changes its leverage from no debt by taking on new debt in the amount of 13.3% of its current market value, what is the present value of the tax shield it will create? The present value of the tax shield is $ billion. (Round to two decimal places.) Assume that Microsoft has a total market value of $310 billion and a marginal tax rate of 35%. If it permanently changes its leverage from no debt by taking on new debt in the amount of 13.7% of its current market value, what is the present value of the tax shield it will create? Plan: To compute the present value of the tax shield we can use the following equation: PV(InterestTaxShield)=TcD where Tc is the marginal corporate tax rate and D is the amount of debt. Execute: Use the formula given above to compute the present value of the tax shield. Therefore, PV(InterestTaxShield)=35%($31013.7%)=$14.86billion The present value of the tax shield is $14.86 billion. Evaluate: We know that in perfect capital markets, financing transactions have an NPV of zero. However, the interest tax deductibility makes this a positive-NPV transaction for the firm. The total value of the levered firm exceeds the value of the firm without leverage due to the present value of the tax savings from debt. There is an important tax advantage to the use of debt financing