Shop Right Plc has earnings before interest and tax (EBIT) GHC10 million and there is GHC60 million of debt outstanding with a required rate of return 6.5%. The required rate of return on the industry...

Shop Right Plc has earnings before interest and tax (EBIT) GHC10 million and there is GHC60 million of debt outstanding with a required rate of return 6.5%. The required rate of return on the industry is 10% and corporate tax is 30%. Assume there are corporate taxes but no personal taxes.

Required:

1. Determine the present value of the interest tax shield of Shop Right Plc as well as the total value of the firm

2. Determine the gain from leverage, if personal taxes off 10% on share income and 35% on debt income exists