According to MM extension with growth what is the value of Kito’s tax shields.

Kito electronics has an ebit of $200,000 a growth rate of 6% and a

The value of Kito’s tax shields can be calculated using the modified Gordon growth model (MM extension with growth) as follows:

V = EBIT x [((1+g)/(r-g)) + ((1+(r*(1-T))/(r-g))) x (D/E)]

Where V is Kito’s firm value, EBIT is their Earnings Before Interest and Taxes, g is the company’s expected growth rate in perpetuity, r is their required rate of return or cost of equity, T is the company’s effective tax rate and D/E is the Debt to Equity ratio.

In this case, we have V = $200,000 x[((1+6%)/(11%-6%)) + ((1+(11*(1-.4))/(11%-6%))x (0.3)] = $248,077.46.
< br>Therefore ,the value of Kito’s tax shield for its debt based financing strategy would be approximately $248,077.46.