Wilde Software Development has a $13\%$ unlevered cost of equity. Wilde forecasts the following interest expenses, which are expected to grow at a constant $2\%$ rate after Year $3.$ Wilde's tax rate is $25\%.$

Year $1$ Year $2$ Year $3$

Interest expenses $$70$ $$90$ $$105$

What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round your answer to the nearest cent.

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What is the total value of the interest tax shield at Year $0?$ Do not round intermediate calculations. Round your answer to the nearest cent.

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$($Below is a similar question I got wrong previously as a referrence. $)$

a$.$The annual tax savings are equal to the tax rate multiplied by the interest expense.

For example: Tax savings in Year $1=25\%($$$80)=$$$20\mathrm{.}00.$

Tax shield horizon value $=T{S}_3\frac{1+g{L}_L}{r_{5u}-g{L}_L}$

$=$$$32\mathrm{.}50\frac{1\mathrm{.}04}{0\mathrm{.}11-0\mathrm{.}04}$

$=$$$482\mathrm{.}86$

b$.$ Value of tax shields $=\frac{\text{\$}20\mathrm{.}00}{(1\mathrm{.}11)}+\frac{\text{\$}25\mathrm{.}00}{\{1\mathrm{.}11{)}^2}+\frac{(\text{\$}32\mathrm{.}50+\text{\$}\frac{1}{82\mathrm{.}86})}{(1\mathrm{.}11{)}^8}$

$=$$$415\mathrm{.}13$

Solution