So we had done an exercise where we figured out the value of the firm.

With taxes, and with the real world twist, which is pretty important.

The interest is deductible as well, on debt.

And if you stare at the my beautiful handwriting on top,

I broke it up into two parts.

I first valued the unlevered firm, which we know, very simply is 660 million.

99 million to equity holders divided by a discounted of 15% which

is the return on assets and the return on equity for the unlevered firm.

I know this gets a little bit confusing but

always think of unlevered as being the real assets in some sense, right?

So where financing is not affecting anything.

But now financing starts affecting value.

But value not of the real assets, because that's determined by supply,

demand out there, by markets, but

by the fact that a financial asset has been given to you by the government.

So you pay the government, and the government pays you something back.

It's kind of really weird, but that's the way it is.

So what's the value of the tax shield?

Well, like value of anything, cash flows divided by discount rate.

The cash flows every year, for simplicity, are fixed $500 million is the debt,

interest is 10%, that gives you 50 million.