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7，Flying Tiger Corp. is currently unlevered, has equity valued at $575000, and has earnings before interest...

7，Flying Tiger Corp. is currently unlevered, has equity valued at $575000, and has earnings before interest and tax (EBIT) of $150000. In order to save on taxes, FT's CEO suggests that the firm should issue new debt to the market and use the proceeds of the debt issue to retire a portion of its equity. The capital structure change results in $200000 of new debt with an annual interest expense of 12 percent. Assume no other changes to Flying Tiger.

a. How much in taxes will Flying Tiger save, per year, as a result of the decision to issue debt and retire equity? Use a corporate tax rate of 34 percent.
Answer:$ ————

Place your answer in dollars with no comma.

b.Suppose that the debt is permanent, meaning that this new level of debt will stay on the books year after year forever. Under this scenario determine the how much in value the permanent debt tax shields provide?

Answer:$————

Place your answer in dollars with no comma.

You Must Get Both Parts Correct to Receive Credit

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Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

THERE ARE 2 WAYS TO SOLVE BOTH ANSWERS. BOTH WAYS ARE SHOWN AND EXPLAINED WITH FORMULA07.16 E V E ENG. 18 01 2000 E M1145 * $ K M N Q R S - FLYING TIGER 1121 1122 1123 1124 NO DEBT 150000 1125 EBIT INTEREST EBT

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