Question: The answer to 6 comes from 5. 5. Suppose that company A borrows $2 billion by issuing 15-year bonds. Comanche's cost of debt is 7%,

The answer to 6 comes from 5. 5. Suppose that company

The answer to 6 comes from 5.

5. Suppose that company A borrows $2 billion by issuing 15-year bonds. Comanche's cost of debt is 7%, and then repay the principal of $2 billion in year 15. Comanche's marginal tax rate will remain 39% throughout this period. By how much does the interest tax shield increase the value of Company A? 6. Because the probability that the Fed reduces the interest rates, there would be the option of reducing the cost of debt to 6% at the end of year 5. What would be the increase of value of Company A then? 5. Suppose that company A borrows $2 billion by issuing 15-year bonds. Comanche's cost of debt is 7%, and then repay the principal of $2 billion in year 15. Comanche's marginal tax rate will remain 39% throughout this period. By how much does the interest tax shield increase the value of Company A? 6. Because the probability that the Fed reduces the interest rates, there would be the option of reducing the cost of debt to 6% at the end of year 5. What would be the increase of value of Company A then

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