Advanced Placement (AP)

The Occitane Company expects to have free cash flows of $ 4.25million every year forever. Occitane has a cost of equity of 10% and a cost of debt of 6%, and it pays a corporate tax of 35%. The company maintains a constant debt-to-equity (D / E) ratio of 0.6. What is the present value of the tax shield (PVTS)? Hint: calculate the value of the firm with and without the tax shied.

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The Occitane Company expects to have free cash flows of $ 4.25million every year forever. Occitane h...

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