Herculio Mining has net operating income of $5 million. It has $40 million of debt outstanding, with a required rate of return on 6 percent. The required rate of return on the industry is 12 percent, and the corporate tax rate is 40 percent. Assume there are corporate taxes but no personal taxes.
1. Determine the present value of the interest tax shield of Herculio Mining. Round your answer to the nearest dollar. $
2. Determine the total value of the firm. Round your answer to the nearest dollar. $
3. Determine the gain from leverage if personal taxes of 20 percent on stock income and 30 percent on debt income exist. Round your answer to the nearest dollar. $