Present Value of Interest Tax Shields
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5. Your firm currently has $100 million in debt outstanding with a 10% interest rate. The terms of the loan require the firm to repay $25 million of the balance each year. Suppose that the marginal corporate tax rate is 40%, and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt?
19. With its current leverage, Impi Corporation will have net income next year of $4.5 million. If Impi's corporate tax rate is 35% and it pay 8% interest on its debt, how much additional debt can Impi issue this year and still receive the benefit of the interest rate tax shield next year?
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Solution Summary
The solution computes present value of the interest tax shields and additional benefits.
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