Use the Information for the Question(s)below

question 29

Multiple Choice

Use the information for the question(s) below.
Flagstaff Enterprises expected to have free cash flow in the coming year of $8 million,and this free cash flow is expected to grow at a rate of 3% per year thereafter.Flagstaff has an equity cost of capital of 13%,a debt cost of capital of 7%,and it has a 35% corporate tax rate.
-If Flagstaff currently maintains a .5 debt to equity ratio,then the value of Flagstaff's interest tax shield is closest to:

• A)$7 million.
• B)$18 million.
• C)$10 million.
• D)$24 million.

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Definitions:

Point A to Point B

Represents the process or journey from a starting location, situation, or condition to a designated end or goal, often used figuratively.

Skimming Demand

A pricing strategy where a high price is set to "skim" layers of demand from the market sequentially, usually employed during the introduction of a new product.

Penetration Demand

A market strategy focused on increasing market share for an existing product through penetration pricing, advertisement, and sales promotion.

Demand Curve

A graph that relates the quantity sold and price, showing the maximum number of units that will be sold at a given price.