PV of the interest tax shields, gains from using leverage
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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?
a. $444,000
b. $150,960
c. $15 million
d. $2.516 million
e. $456,960
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
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Answers multiple choice questions on PV of the interest tax shields, gains from using leverage.
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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?
...
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