Question: Problem # 8 : You forecast for ABC Corp. the following unlevered cash flows: Year 1 : $ 1 , 5 6 2 mil. Year

Problem #

8

: You forecast for ABC Corp. the following unlevered cash flows:

Year

1

: $

1, 562

mil.

Year

2

: $

1, 511

mil.

Year

3

: $

1, 426

mil.

Year

4

: $

1, 778

mil

Year

5

and on:

1 %

annual growth

Assume the firm

s unlevered cost of capital is

9 %

and its cost of debt is

4 % .

The corporate tax

rate is

25 % .

The firm intends to maintain a D

/

V ratio of

25 %

for the foreseeable future.

(

)

Calculate the enterprise value of the firm using the WACC approach

(

)

What is the total present value of all future tax shields from the firm

s use of debt?

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