1) If a firm has $7.4 million in debt, $22.4 million in equity, a tax rate of 34%, and pays 6% interest on debt, what is the firm's PV of the interest tax shields?
c. $15 million
d. $2.516 million
2) What do you need to know to calculate the gains from using leverage for individual companies?
a. tax rate on corporate profits
b. market value of a firm's outstanding debt
c. personal tax rate on income from debt
d. personal tax rate on income from stock
e. all of the above
Answers multiple choice questions on PV of the interest tax shields, gains from using leverage.