The depreciation tax shield is as risky as corporate debt

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Your company has an expected net income of $250,000 for next year. It also has a constant debt of $2 million. The subsudized interest rate paid by the company is 2%, while the market interest rate is 3.50%. The unlevered return on equity is 7% and the corporate tax rate is 35%. The assets have a residual value of $50,000 to be depreciated in two equal annual installments, after which they will be fully depreciated. The depreciation tax shield is as risky as corporate debt. Assuming that the EBITDA of the company is expected to be at the same level for 5 years, what is the value of the company?

Reference no: EM131354191

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