# Question 2 (with Taxes) Harris Solutions expects to have free cash flow in the coming year of \$1.75 million, and

Question 2 (with Taxes) Harris Solutions expects to have free cash flow in the coming year of \$1.75 million, and

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Question 2 (with Taxes) Harris Solutions expects to have free cash flow in the coming year of \$1.75 million, and
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its free cash flow is expected to grow at a rate of 3.5% per year thereafter.

Harris Solutions has an equity cost of capital of 12% and a debt cost of capital of 7%, and it pays a corporate tax rate of 40%. If Harris Solutions maintains a debt-equity ratio of 2.5, what is the value of its interest tax shield?

Compute its unlevered value by discounting its free cash flow at its pretax WACC:Pretax WACC = .EDE+D E+D’112%+2.51+2.51+2.57% =8.43%Constant growth perpetuity:yo _ \$1.75 million…

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