Dear Sofia,
Yes, it is the interest expense. The ITS is always the corporate tax time the interest expense. However, when debt is constant and perpetual we have:
Yes, it is the interest expense. The ITS is always the corporate tax time the interest expense. However, when debt is constant and perpetual we have:
\(ITS = \tau InterestExpense = \tau (D\times r_D)\)
once we discount:
\(PV(ITS) = \dfrac{\tau (D\times r_D)}{r_D} = \tau D \)
\(PV(ITS) = \dfrac{\tau (D\times r_D)}{r_D} = \tau D \)