Question: Your firm will increase its leverage from $ 5 0 million to $ 2 5 0 million. It will maintain leverage at this rate for

Your firm will increase its leverage from $50 million to $250 million. It will
maintain leverage at this rate for 10 years, at which point it will decrease back to
$50 million. Your firm currently has a marginal tax rate of 21% is expected to
remain constant over the foreseeable future. Your firm's interest payments on the
marginal debt are 6%, the risk associated with these payments is 6%, the risk-free
rate is 3%, and your unlevered cost of capital is 10%. What is the present value
of the incremental tax shield provided by this temporary leverage increase

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