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Value of the Interest Tax Shield

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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 ...

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$2.19
See Also This Related BrainMass Solution

Compute the present value of interest tax shields generated by these three debt issues.

1. Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate is T^c = .35.
a. A $1000, one-year loan at 8%.
b. A five-year loan of $1000 at 8%. Assume no principal is repaid until maturity.
c. A $1000 perpetuity at 7%.

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