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Value of the Interest Tax Shield

If a firm permanently borrows $100 million at an interest rate of 8%, what is the present value of the interest tax shield? (Assume that the marginal corporate tax rate is 30%.)

$8.00 million

$5.60 million

$30.00 million

$26.67 million

If a firm permanently borrows $50 million at an interest rate of 10%, what is the present value of the interest tax shield? Assume a 30% marginal corporate tax rate.

$50.0 million

$25.0 million

$15.0 million

$1.5 million
German laws and accounting procedures are designed, generally, to protect interests of:

shareholders.

managers.

creditors.

employees

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Question 4
Present value of interest tax shield = $100 million*8%*30%/8% = $30 million

Present value of interest tax ...

Solution Summary

This Solution contains calculations to aid you in understanding the Solution to the provided questions.

$2.19