Explore BrainMass

# Present value of interest tax shields

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

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%.

#### Solution Preview

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 perperuity at 7%.

Present value of tax shield is calculated by discounting the cash shields at the interest rate
Tax shield = Tax rate x ...

#### Solution Summary

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

\$2.19