3. how much potential value, if any, can american home products create for its shareholders at each of the proposed levels of debt?

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12-09-2022
Business

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3. how much potential value, if any, can american home products create for its shareholders at each of the proposed levels of debt?

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tutorconsortium344 tutorconsortium344 · Answer 1 · 2022-09-14T20:50:42+02:00

The following is the potential value that AHP can create for its shareholders at each of the proposed levels of debt:

American Home Products(AHP) can reduce taxes by taking on more debt because the company will have a tax shield. On the other side, debt will result in decreased interest income. Tax shield less interest should be the value produced. At 30%, 50%, and 70% debt, the values generated for shareholders will be 52.7, 173, and 293.4 million. AHP will also have 52.7 million for the value created and 173 million for the tax shield.

American Home Products(AHP): American Home Products, one of the largest pharmaceutical concerns in the United States and a conglomerate that includes food and household-product divisions, is often referred to as “Anonymous Home Products” or the “withdrawn corporate giant.”

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