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Estimate the value of restex interest tax shield

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Question - Restex has a debt-equity ratio of 0.94, an equity cost of capital of 16%, and a debt cost of capital of 12 %. Restex's corporate tax rate is 35 %, and its market capitalization is $ 173 million.

a. If Restex's free cash flow is expected to be $ 6 million one year from now and will grow at a constant rate, what expected future growth rate is consistent with Restex's current market value?

b. Estimate the value of Restex's interest tax shield.

Reference no: EM131661461

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